HOUSEBUILDING and property group, Abbey, faces further difficult trading following the 35 per cent cut in pre tax profit to £3 million in the six months to October 31st, 1995.

Announcing the somewhat worse than expected interim results yesterday, executive chairman Mr Charles Gallagher described business conditions in Britain and Ireland as "competitive, with the added difficulty in the UK of falling house prices and plant hire rates". This will lead to continued pressure on margins.

No forecasts have been made for the full year as the outcome will depend on the crucial February to April trading period. However, if the first half trend continues into the second six months, profits could fall from £8.37 million to £5.5 million in the full year, well below brokers' predictions of between £6.8 million and £7 million.

Even if the group manages to generate profits of £3 million in the second six months, the same level as in the first half, it now appears certain it will be 1996/97 before there are any prospects of a recovery.

The cracks in Abbey's profit performance first appeared in the second half of 1994/5 when profits fell by 31 per cent. This decline has now accelerated to 35 per cent.

The latest results show a fall in sales from £24.69 million to £22.43 million. Housebuilding and property development took the brunt, with a cut from £19.1 million to £16.8 million. Plant hire was unchanged at £5.29 million, while rental property improved from £280,000 to £300,000.

Abbey built 167 houses in Britain in the first half with an average price of between £85,000 and £90,000, down from 227 in the first half of 1994/5. This reflects the continued depressed state of the British housing market and reduced margins.

In contrast, it built 50 houses in the Riddlesford development (outside Bray) in Ireland, at an average price of some £70,000. This was up on the 28 built in the same period in the previous year. However, operating margins (before interest and overheads) at 14 per cent are less than the 7 per cent achieved in Britain.

Mr Gallagher said the group hoped to built 100 houses in Ireland in the full year. The Irish, market, he added, was "encouraging" and would become increasingly important to the group.

Abbey has a building target of 350 houses for the British market, in the full year. Abbey has not" detected any improvement in that market but expects benefits from lower interest rates, tax concessions and high liquidity in the market, particularly in the run up to an election. However, Mr Gallagher warned against any "artificial stimulus" which could "rebound later".

While turnover at the group's, plant hire division was unchanged, operating profit was lower at £650,000. Short term trading conditions were expected to be difficult, said Mr Gallagher as the market adjusts to reduced demand".

Despite the drop in group profitability, an unchanged interim dividend of 2.1p net a share has been declared. Earnings per share fell from 8.16p to 5.19p.

The group is to build up its land bank in Britain following the drop in land prices. It is in a strong financial position with cash at hand of £17.5 million bank loans amount to £9.1 million so expanding its land bank should not pose any difficulties.

The shares, unchanged at 132p (12 month high 143p low 123p), are on a prospective price/earnings ratio of 11.8, assuming a drop in earnings per share from 15.08p to 11.2p this year, but that is probably taking too optimistic a view.