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Great Titchfield Street, London -- The shares of the UK's largest housebuilder, George Wimpey (LSE: WMPY), have put on a good show so far this year rising by two-thirds from their low point in February. However, with its low profit margins it still seems to be regarded as the sick man of the sector. This morning it announced that its two UK businesses were to be restructured into one division. Will this help to spruce up its reputation? Why were the businesses split anyway? The legacy of the two UK businesses dates back to 1996 when Wimpey acquired McLean Homes in return for selling its construction arm to Tarmac. McLean is slightly more profitable than Wimpey's existing UK business and is more concentrated on the premium end of the market. Wimpey also has a division in the US, called Morrison, which accounts for 20% of its profits. However, the UK companies have been kept apart since 1996, resulting in duplicated costs. Wimpey reckons it can save £15m per year by integrating areas such as purchasing, design and administration. Unfortunately 250 jobs will go as five regional offices are being shut down -- the one-off cost is expected to be £15m. That represents about 15% of Wimpey's profits for 1999 so, if it can be achieved, it's a significant amount. Why now? There's no doubt that there is evidence of the "new broom" effect in this situation. Two months ago Wimpey appointed Peter Johnson, previously head of Rugby Group, as its new chief executive. It's not unusual for new bosses to stamp their authority by announcing a big reshuffle. However, a re-organisation along these lines was probably well overdue. Does Wimpey still offer good value? Wimpey provided an update on current trading with this announcement. Although profit before tax for this calendar year is expected to be in line with expectations at around £150m, Wimpey expects the first half of 2001 to be lower than the first six months of this year. This was said to be due to planning delays and many other operators have reported similar problems. However, even after this action Wimpey's margins will remain amongst the lowest in the sector. For the next few years UK completions are expected to remain fairly static at around 12,500 meaning that the group is relying on house price increases to drive revenue growth. This may limit some of the potential upside in the shares. Net debt of over £300m also restricts the group's options. On a forward price to earnings ratio of 5 and a dividend yield of 4.5% they certainly don't look expensive, but fans of housebuilding shares may find even better value for money elsewhere in the sector. Where Next?
TMFNigel reviews Wimpey's latest results
TMFDragon looks at the housebuilding sector
Wimpey discussion board