Wimpey is an interesting one. Out of all the UK house builders its market cap is closest to its NAV. The tangible NAV, as at 31st Dec 04, was 3.60 per share. It is now trading a small premium to that.

If you consider that the company is forecast to make 80p per share this year, then you can see that by now the tangibile NAV is already close to 4.00 per share.

The picture then gets even better if you consider that most of the NAV is made up of land that has been bought over the last 10 years. The book valuation of this land has not been adjusted to reflect the fact that much of it has gone through the planning permission process since they bought it. Nor has it been revalued to reflect the fact that the price of land has doubled over the last 5 years.

So by my estimates the company is probably worth closer to 8.00 per share. Ok most of that valuation will be tied up for years as the company slowly turns it over into houses to sell. But this does explain why the company has recently managed to maintain such a terrific return on equity in excess of 20%. It has a PE ratio of 5, historic and predicted.

Many think that if house prices are no longer going up then companies like WMPY will not be able to maintain such good returns. But the fact is that if house price just stay flat as they seem to be doing, or even if they drop by say 5% or 10% over the next couple of years, this will not be a problem. Wimpey will still be selling their assets at a huge margin over what they paid for them for some years to come.

Tallsiii