Thursday, 14 November 2013

Tortoise or hare?

It is interesting to compare the interim management statements from Britain’s two volume housebuilders over the past two days. For Barratt Developments yesterday the message read like “full steam ahead”; for today's from Taylor Wimpey it sounded much closer to “proceed with caution” (see Briefing/Corporate).

Compare Barratt’s reservations per site per week, up 32% to 0.71, with TW’s 0.65, up a more pedestrian 14%. This is not exactly comparing apples with apples; Barratt’s covers the 19 weeks from its June year end, compared with TW looking at the period from January, so for Barratt there is more exposure from April’s introduction of Help to Buy. But the general tenor of the statements diverge markedly.

Barratt’s forward orders stand at 4,514 units since July, up 28%, while those for the UK’s number two rose 13% to 7,557 for the year to date.

Where they appear to diverge particularly is on land buying. Barratt approved the purchase of 121% more plots, while TW did not give like-for-like comparatives. It did however state “we are starting to see early indications of increased competition in some regions. Whilst we do not anticipate a significant contraction in attractive land opportunities over the next few months, the quality and scale of landbank gives us the ability to be very selective when the more competitive dynamic returns to the land market”.

TW appeared reticent on the subject of its selling prices, referring only to “some selling price increases in line with general inflation”; Barratt detailed inflation of 1.5 - 2%.

I’ll bet TW has managed more than that. The statement declares its “disciplined and value focused strategy”. That could possibly seen as code for “we’ll prioritise selling prices over volumes” - a policy it stated explicitly on regular occasions before the industry started lobbying the government for Help to Buy and its now virtually defunct predecessor NewBuy. Ministers expect the quid pro quo to be a big increase in volumes.

Not quite as extreme as Aesop's tortoise and hare fable, but which company’s apparently contrasting strategy is wisest will only become clear dependent on how long this largely government funded boom comes to an end. Three years or more and Barratt will come out smelling even rosier than Taylor Wimpey. A shorter-lived recovery and TW may well be in a better place.


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