Monday, 7 April 2014

Reports of lending's death greatly exaggerated?

Despite headlines to the contrary, banks don't look like turning off the taps of mortgage lending in a hurry. The weekend papers reported that the latest Bank of England quarterly credit conditions survey (published on Thursday) showed bank are planning to scale back credit over the next three months despite a sharp rise in mortgage demand.

This looks to be the case: the percentage balance of banks planning to raise the proportion of loan applications they approve over the next three months fell to -25% from -2%. But this probably reflects an even greater increase in demand, from -2% to +39%. In all probability this represents a rationing in supply, possibly temporarily as banks simply have not the staff or infrastructure to keep up with demand.

In every other regard, it looks like the appetite to lend is undeterred, according to the report's commentary: "In the three months to early March Lenders reported that the availability of secured credit to households increased slightly, the seventh consecutive quarterly increase in availability ... . The expansion in overall availability was reported to be driven by an improvement in the economic outlook and increased appetite for risk on the part of lenders. Lenders expected the availability of secured credit to increase further in Q2, driven primarily by a desired expansion in market share ... There was also a significant increase in the willingness to lend at LTV ratios above 90% — the highest reported balance since the question was first asked in 2013 Q2 ... Lenders expected a slight further narrowing in mortgage spreads over the next three months ... According to lenders, secured household loan performance improved significantly for the third consecutive quarter in 2014 Q1. Default rates and loss given default both fell significantly, with further falls expected in Q2. Several lenders attributed the fall in loss given default to the rise in house prices."

Thursday, 27 February 2014

Giving and taking (and taking leave)

Lots of results today - Barratt, Redrow and Kier - and a couple of unexpected news flashes - Grenville Turner of quoted estate agency group Countrywide to step down as CEO (and stay as non-exec Chairman) ... and Costain to raise £75m (and bringing results forward).

In summary, housebuilders remain in clover, with volumes, prices, margins and orders all heading north and returning capital, in varying degrees. Barratt, which had a lot of ground to make up on more distributive rivals paying a higher proportion of earnings as dividend (one-third versus an anticipated one-sixth). Redrow introducing dividend after long drought. This follows expansive special dividend pledges from Berkeley, Persimmon and Taylor Wimpey. It should boost return on capital, but implies builders believe value-enhancing opportunities in land market will start dwindling, best guess over the next two years.

Going the other way was Costain, which today asked shareholders for another £75m. This was not to patch up any black holes - results, which had to be brought forward, showed a 10% improvement in PBT, on sales up 3% and a 25% expansion of the order book - but to bolster its balance sheet to continue to attract top clients, invest in new opportunities and fund the less cash-positive (but attractive) partnering type contracts it has been targeting.

Kier's Chief Executive Paul Sheffield used the hybrid construction-services group's interim results to bid what many investors think is a surprisingly early farewell, but with a 96% increase in operating profits (34% like-for-like, stripping out the May Gurney acquisition, all seems to be well.

(Both Costain and Kier saw cash pressured by working capital changes inherent in the less risky new forms of working; time my show that smaller companies chasing lower margin, riskier work just to maintain cashflow may be storing up problems for the future.)

Countrywide's high profile chief executive Grenville Turner will be moving to the non-executive chairman role; interim chairman David Watson was particularly  bullish announcing FY results: "we fully expect the UK housing recovery to continue and anticipate that we can deliver the highest ever levels of Group profitability in 2014".

Wednesday, 26 February 2014

Round-up │ 26 February 2014

In Briefing pages: (Corporate) Taylor Wimpey - "managing the cycle" or "calling the top"? • Travis Perkins - benefiting from growth in housing transactions and investing for growth │ (Forthcoming events) (Thursday) Barratt, Redrow and Kier H1 results; (Friday) Land Registry House Price Index.

Quote of the day: "Housebuilding is a cyclical industry, and whilst measures from Government, interest rate setters and regulators can help to reduce the scale of that cyclicality, we do not believe it can be removed completely ... This means that we need to take a more active approach to managing the cycle than has been historically undertaken in in the business, or the sector", Pete Redfern, Taylor Wimpey Chief Executive

Tuesday, 18 February 2014

Round-up │ 18 February 2014

In Briefing pages: (Economic) House price inflation gathers pace, with first time buyers bearing the brunt│ (Corporate) Morgan Sindall foresees further supply chain pressure amid falling profits • Kier chief in surprise decision to step down│ (Forthcoming events) (Wednesday) Galliford Try, H1 results; (Friday) HMRC Property Transactions.

Quote of the day: "although there are signs of improving conditions in some of our markets, it is anticipated that upward pressure on supply chain costs and skills availability will provide additional management challenges", John Morgan, Chief Executive, Morgan Sindall
Chart of the day:
Source: ONS


Monday, 17 February 2014

Round-up │ 17 February 2014

In Briefing pages: (Economic) 18% increase in new properties on market fails to match those coming off, leading to big increase in asking prices │ (Corporate) Housebuilder and land group Gleeson sees profits more than double • Scottish housebuilder with eyes on the south, Cala, calls for rivals to boost production │ (Forthcoming events) (Wednesday) Galliford Try, H1 results; (Friday) HMRC Property Transactions.

Quote of the day: "[Our rivals] are all growing but I just think there’s an opportunity for all housebuilders to move forward and work with government to solve the housing crisis that we have", Alan Brown, Cala Chief Executive
Chart of the day:
Source: Rightmove

Friday, 14 February 2014

Round-up │ 14 February 2014

In Briefing pages: (Corporate) Improving outlook reverses bad fortunes for steel contractor Severfield-Rowen │ (Industrial and political) All right for some: demand soars for waterproofing materials in wake of floods ... but end of the road for the "hopelessly outdated" sandbag │ (Forthcoming events) (Next Wednesday) Galliford Try, H1 results; (Friday) HMRC Property Transactions.

Quote of the day: "I hate [sandbags] with a vengeance. They do nothing but filter water", Mary Dhonau, chairwoman, Flood Protection Association

Thursday, 13 February 2014

Things can only get wetter ...

Did my ears deceive me? “Money is no object,” Prime Minister David Cameron pronounced yesterday as he took the reins of the flood relief effort. “Whatever money is needed, we will spend it.”

Fiscal largesse has not been a notable feature of the current administration, but with waters rising along the Thames, rather than in the distant Somerset Levels, a rare Met Office “Red Warning” having just been posted and a general election looming ever closer, political nous suggests money will be spent and more of it on flood defences. The questions are: when, where, how and how much?

Before the industry starts to form an orderly queue – or, rather, flotilla – to share in hundreds of millions of long term investment, it should be stressed that Cameron was, no doubt quite consciously, referring to flood “relief” rather than “defence”. Along with the physical rescue effort, the PM concentrated on efforts to make insurance claims pay out quicker and the provision of grants for home owners to repair and defend their properties better.

It’s a fair bet to assume carpenters, plasterers, electricians and painters will be in short supply in the next six months or so. If there were a quoted manufacturer of dehumidifiers in the UK (I don’t think there is), I’d be tempted to buy shares in it. As a next best bet, tool hire companies will undoubtedly be doing brisk business in these, pumps and the like.

It’s not just the rain; the wind’s been a problem. Stewart Towers is missing a couple of roof tiles; roofers could also be in demand.

Keeping tabs on these efforts, building surveyors are also likely to be in demand during the relief phase.

However, this could put more stress on southern housebuilders, already encountering cost inflation and recruitment challenges. A few weeks ago they were complaining about finding bricks and brickies; looking ahead, it could be finding most other trades.

On the subject of housebuilders, expect somewhat more detailed scrutiny throughout the planning stage of whether proposed sites are at risk of flooding or, indeed, could contribute to it. John Stewart, chief economist at the Home Builders Federation, yesterday made a spirited defence against the widespread perception that many or most new homes are at risk on Radio 4’s Today programme (when he got past James Naughtie’s interminable questions). Nevertheless, councils getting criticism from all directions may well require even more box ticking.

The civil engineering industry will benefit short-term from patch-up jobs (not least to the rail infrastructure in the South-west) but probably have to wait longer for any new big ticket items. But expect a few high profile announcements to whet the appetite, even if they aren’t accompanied by hard cash.

But it will probably come; Big Politics is at play. Cameron’s cancelling of a visit to Israel to take personal control, amid ministerial back-biting and blame games, while Ed Miliband and Nigel Farage donned their wellies for semi-aquatic photo opportunities, all underlined the sensitivities of the crisis. (The building industry is now at the centre of two of the three big political issues: immigration/EU, housing and now flooding.)

Having said “money is no object” – even for relief rather than defence – the government will find it hard to insist on lengthy Treasury “value of money” exercises and will no doubt announce at some point ‘twixt now and the election a headline grabbing increase in capital funding, which will be hard for even a changed government to wriggle out of. Strengthening of coastal flood barriers, improvements to train lines in at-risk areas, river defences and that political beachball, dredging, are all obvious candidates for increased investment over the remainder of this parliament and the next.

But a more fundamental re-appraisal of flooding, climate fluctuations and where we situate and protect property could rumble on for years. Tree planting up river; flood protecting retrofits for new and existing homes; rethinks on zoning are examples of issues that could come to the fore the more we continue to get drenched.

This could provide a useful vein of work for multi-disciplinary consultancies, some of which are probably forming their own flooding advisory teams as we speak.

The issue won’t go away, especially as water levels creep up at points further and further down the Thames. Today it emerged that the capital’s flood barrier has been closed 28 times since 6 December. That’s almost a fifth of all closures since it was erected in 1982.

There’s nothing like a spot of water in MP’s (at least London) backyards to concentrate the mind.

This Blog first appeared on on 12 February 2014