Bottom Line: Believe in Barratt

SIR LAWRIE Barratt must wonder what he has to do to shift his share price when a 135 per cent profits increase and a doubling of the dividend left it unchanged yesterday at 256p.

The market's cold shoulder reflects two things: a doubling of the share price over the past 12 months and a residual suspicion of the company which came a spectacular cropper in 1991.

But if Barratt continues to keep its word, its ambitious volume and margin targets will look increasingly plausible and the shares' discount to the sector average harder to justify.

Selling 8,000 houses in two years' time at a 10 per cent pre-tax margin (even assuming little house price inflation) looks believable now that the remaining 700 low-margin or loss-making sites are being traded out. Importantly, a reduction of working capital in California and the final wind- down of the commercial property portfolio in the UK will ensure that the growth can be funded from cash-flow.

If demand is really there in the UK, and the US continues its return to the black then pre-tax profits of over pounds 60m are likely. Even in the year to June 1995, when a 10 per cent return will be restricted to the operating level, profits are forecast to be pounds 50m.

That implies earnings per share of 19.5p and puts the shares just over a year out on a prospective price/earnings ratio of only 13. It makes the shares, even after last year's good run, a buy.