Sale of Laing housing would ease £390m debt

John Laing Group's most likely solution to its soaring debts, expected to reach £390m by the end of the year, is the sale of its profitable housing division, according to a city analyst. Such a move would raise around £500m.

At the last year-end, Laing's net debt was £30m, whereas 12 months earlier, it had been cash positive to the tune of £38m. The on-going downturn during 2001 results from falling turnover in construction, an increasing investment in land and stronger positions in property and PFI.

John Carnegie, construction analyst with stockbroker Schroder Salomon SB, said: "In 2001 we believe there will be a severe cash outflow as Laing divests its heritage." During the current financial year, this outflow could take the net debt from £30m to £390m by the end of December (see table).

One of the drains will be the construction division, which will depart with £70m of cash when sold. On a second front, the cash proceeds from the recent US housing sale were only £30m, with the rest in loan notes and a small equity stake. In addition, Laing has committed £91m (gross - including cash of £30m) to the purchase of Hyder's investment portfolio, which will also increase debt.

"Laing does have options to reduce the level of debt through the sale of properties, selected investments or ultimately the UK Housing business," said Carnegie. "Strategically, the sale of Housing seems the most likely option."

Carnegie thought that Laing's housing business was increasingly looking "non-core" in a group that has re-labelled itself as an investor in infrastructure.

Laing Homes achieved an operating margin of 16.2% last year and notched up a profit of £47m, a result that is expected to rise to £49m in 2002. Steve Lidgate, head of the housebuilding division, is widely regarded as an astute operator and has given the housing division much credibility.

One City view is that Laing's housing business would be too large for any of its rivals to swallow, given that the sector has recently undertaken a round of mergers. That would leave the way open for Lidgate to lead a management buy-out.

"The [housing] business has been rejuvenated under the leadership of Lidgate," said Carnegie. "He has proved to be more than just a charismatic marketer, but an astute builder with an eye for quality."

Laing said (CJ 13 June) it was "not in a hurry" to sell Laing Homes.