Commercial property operator-turned housebuilder Swan Hill is starting to see the fruits of its change of direction with a 35 per cent interim profits increase to £3.7 million pre-tax, writes Ben Cobley.

Turnover on continuing operations was roughly stable at £39.7 million for the six months to June, as commercial property revenues slumped from £18 million to £800,000 and housing sales increased from £21.4 million to £39 million. The now-core housing operation contributed operating profits of £4.9 million, more than double last year's first half.

Swan Hill says the market in southern England, where its operations are based, 'moved ahead strongly in the first half', especially since the company was selling from 12 principal sites, compared to seven in 2001's first half. It sold 148 units, against 111 last year, with average selling prices rising from £192,000 to £246,000.

Though finance director Colin Archer reports some 'cooling' of the market, he adds 'this is what we are hoping for, because consistent 15-20 per cent rises are unsustainable'. He says 'the more that goes on, the harder the fall will be'.

Competition for land is strong, though, and Archer reports the company is 'having to work even harder' to find suitable plots. Its land bank at the end of June was 698 plots, all with planning consent – around two years' supply at current building rates.

Reported net assets remain well above the company's share price at 129p a share, a rarity in the sector. Assets are valued at cost rather than market value, and, in a firm market, 'real' net assets could be above that.

The shares rose 2p to 85p on the results, for a market value of £49.5 million. Existing forecasts from house broker Brewin Dolphin have the company making pre-tax profits of £7.5 million this year, with earnings per share at 9.4p.

This makes for a prospective p/e of 9. That compares with the housebuilders' average of 7 or 8, but is compensated for by assets.