Simonds Group Ltd (ASX: SIO) has seen its share price plunge 41% to trade at just 48 cents after the homebuilder announced that it was expecting to report a loss for the first half of this financial year.

Simonds says it is forecasting a first half of 2016 financial year loss of between $2 and $4 million, after deciding to close its Madison Projects division – which will cost between $7 and $8.5 million.

As the company explains…

Madison Projects was acquired by Simonds in 2002 and operates in the medium density market. But the market has seen a significant drop in margins for builders as the land costs have increased for commercial developers with no increase in customer buying prices. Madison has completed 6 projects totalling $42.1 million in the past 4 months – but has also been unsuccessful winning a number of tenders at appropriate margins.

An independent review confirmed the impact of its closure, including operating losses from existing projects of between $7 and $8.5 million.

Unfortunately, the bad news didn’t stop there. Simonds says a number of factors have impacted its Simonds Homes division including:

  1. deferrals in site starts due to land titling delays,
  2. delays in the opening of new display homes
  3. increased market competition, and
  4. increased costs incurred in advance of the expansion in Queensland and NSW.

The company also says its Builders Academy Australia has experienced slower than anticipated growth in new student enrolments.

All in all, that’s not great news for Simonds, which listed on the ASX in November 2014 at an offer price of $1.78.

Investors looking for an alternative home builder with a solid fully franked dividend might want to consider looking at Tamawood Ltd (ASX: TWD), which at today’s price of $2.95 is offering a yield of 8.5%, or Cedar Woods Properties Limited (ASX: CWP) – with a dividend yield of 6.7%, fully franked too.

Foolish takeaway

Simonds was never an especially exciting company with a huge growth runway. Dependent on the building cycle and in a sector with intense competition is always fraught with danger. Simonds shareholders might want to consider looking elsewhere.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.