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

Wednesday, 12 February 2014

Round-up │ 12 February 2014

In Briefing pages: (Economic) Carney quietly brushes unemployment-linked "Forward Guidance" under carpet amid dovish BoE Inflation Report (Corporate) Atkins trading and outlook in line with expectations, with "good momentum" in UK road and rail │ (Industrial and political) Big contract wins for Costain and Carillion

Quote of the day: "unemployment rate has fallen much faster than anticipated... and is likely to reach 7% by the spring", Mark Carney, Bank of England Governor
Chart of the day: BoE GDP projections

Tuesday, 11 February 2014

Round-up │ 11 February 2014

In Briefing pages: (Economic) Land prices growing at 7% across England & Wales, 14% in Prime London │ (Corporate) Bellway sees more growth in sales, prices and margins│ (Industrial and political) Look out, look out, there are site thieves about • Qatar World Cup authorities attempt to improve site conditions • Spanish home owners still in need of reality check
Quote of the day: "the continued strength in the UK housing market  [has been] supported by strong consumer demand, together with more widespread access to affordable mortgage finance which has largely been driven by the availability of Help to Buy", Bellway
Chart of the day: 
Source: Knight Frank Residential Research

Monday, 10 February 2014

Stuttering recovery spells nervous times for contractors

Timing is everything, not least for construction companies trying to steer a course from recession into recovery. Today’s Construction Trade Survey from the Construction Products Association (CPA) starts with the good news before moving rapidly onto a wodge of statistics that could be very bad news for contractors, especially those that have recently taken on fixed price contracts.

The CPA release kicks off with the news that, for the first time since the financial crisis, there have been three consecutive quarters in which the 1,000-odd contractors surveyed saw workloads higher than the same period a year earlier. In the fourth quarter 15% more firms saw rises in output than those suffering falls. But this compares to balances of +72% in Q2 and +43% Q3, with the drag on overall levels in Q4 being the result of negative balances in repair and maintenance work.

More worrying, incoming orders dropped unexpectedly in the fourth quarter. The only sector to register a rise was new public housing (also the best performing in the output category during the quarter), with a fairly feeble balance of +9%. Rather shockingly, the Help to Buy-fuelled private new housing sector flat-lined, while all other categories of new build and repair work saw negative balances of 8%-15%.

Some of these may be statistical aberrations that may reverse during 2014, especially given the level of repair work when the current near-Biblical floods retreat. (But it’s hard to imagine how many contractors in the southern half of England will have managed to do much work in what will probably be a complete write-off of a first quarter.)

The real worry for those contractors with less than robust balance sheets are supply chain issues, which the CPA goes into in some detail. Seventy per cent of “heavyside” manufacturers reported rising costs (over half of them registering inflation above 5%). By the looks of things most or all of these were passed on to their customers, with a net 65% of contractors reporting rising material costs (while a net 34% saw labour rates go up).

By contrast, the balance of contractors that had raised their tender prices above where they were a year earlier was a mere +2%, down from +4% in Q3. Simple mathematics would suggest their margins would fall: indeed they did, with a net 14% reporting shrinkage, up from 11% in Q3.

Moreover, many struggled to actually get labour: 41% struggled to get bricklayers and 32% encountered a paucity of carpenters. This spells potential trouble ahead in finishing jobs. Add to this the likelihood of flood-led delays in Q1 and the outlook for getting paid could deteriorate further in the months ahead. (The survey already detected a slight uptick in the number of firms taking over 60 days to be paid.)

Under the traditional contracting model, firms get paid a proportion of payments up front so, in a rising market they can replenish cash by replacing old contracts (going cash negative) with increasing levels of new (cash-positive) contracts. The danger for more desperate companies is not pricing enough cost inflation or encountering a stuttering recovery. Just like the CPA figures suggest this is.

All this follows a similar pattern to the early days of past recoveries, possibly the most nervous point of the cycle for many companies. Costs and cash flow may put pressure on many companies but, with better prospects on the horizon, receivers may see more chance of selling off chunks. Certainly time to take a long, hard look at the terms of any fixed price contracts.

This comment appeared first on Building's website,

Round-up │ 10 February 2014

In Briefing pages: (Economic) more growth in contractors' workload, but worrying signs on margins and cashflow │ (Corporate) delays in Australia and Middle East force profit warning from consultant Hyder • Private Rented Sector specialist signs first London deal │ (Industrial and political) Galliard to buy West Ham's Upton Park site │ (Forthcoming events) (Tuesday) Bellway, H1 IMS.

Thursday, 6 February 2014

Round-up │ 6 February 2014

In Briefing pages: (Economic) House prices-earnings ratio hits a new post-Crash high, Halifax │ (Corporate) Bullish read-across for commercial construction (including outside London) from developer │ (Industrial and political) Curb foreigners buying UK (mainly London) homes, says right-leaning think-tank ... Don't worry, they pay their way, says FT • Cameron pledges extra flood defences, possibly more to follow│ (Forthcoming events) Midday, BoE rates decision, no change expected (as ever)

Quote of the day: "For too many [London property] is providing financial shelter rather than human shelter", Civitas 

Chart of the day:
Source: Halifax/Lloyds Banking Group


Wednesday, 5 February 2014

Round-up │ 5 February 2014

In Briefing pages: 
(Corporate) Countryside Properties aims at Top 10 after merger with upmarket housebuilder │ (Industrial and political) Ten more years ... Chancellor sees another decade of house price growth │ (Forthcoming events) (Thursday) MPC base rate and QE decision (no change expected) 

Quote of the day: "I imagine if we were to assemble again in ten years’ time, we would still be talking about the challenge of making sure that our housing supply keeps up with demand", George Osborne, House of Lords committee hearing

Tuesday, 4 February 2014

Round-up │ 4 February 2014

In Briefing pages: (Economic) Reasons to be Cheerful 1, 2 , 3 ... All three construction sectors show growth in January's purchasing survey