A weekly news summary by Pierre Williams, the HBF's head of media, covering all aspects of the housebuilding industry. Available to members only.
Persimmon Announces Largest Ever Profit for a British Housebuilder
Persimmon reported record profits for 2004 and announced that 2005 has started out well. Pre-tax profits rose 33% last year to £470.4m, beating analysts’ consensus forecasts of £468m. Persimmon also raised its full-year dividend by 50% to 27.5p and said that demand had risen since Christmas with around £1bn worth of homes already sold this year. CEO John White said: “We’ve come in with another year of record profit - good growth in operating margin and return on capital.”
The results prompted a spate of profit-taking, knocking 29p off the share price to close at 769.5p on the day, but analysts were unconcerned and instead praised the company’s strategy for keeping its cards close to its chest regarding its future growth strategy. On a BBC item with John White about Persimmon’s results, HBF followed up by re-iterating how undersupply has, and will continue to underpin the market, certainly over the longer term. The fact that house prices have risen 5,000% over the past 40 years (10.3%pa), compared to retail inflation of just over 6%pa over the same period, is a useful tool to back this up.
HBF Note: Media praise for Persimmon’s strategy and results has come in thick and fast. It’s difficult to choose between them, but the Telegraph summed it up like this: “What stock has in five years nearly tripled sales and earnings, more than doubled the dividend and held on to a healthy balance sheet? A banking giant, a Russian oil company, a dotcom survivor? Try a lowly housebuilder.
Chronic undersupply is supporting prices and sustainably low interest rates are keeping prices affordable…. If ever there was set of results to shake up the housebuilding sector’s subterranean rating, Persimmon’s full-year statement yesterday was it….”
Sales Rebound at Taywood
Echoing Persimmon, Taylor Woodrow announced a rebound in sales and reservations since the start of the year. The company says sales are now above the level they were at the same time last year and forecasts price rises of 2 to 3% for 2005. The comments came as it unveiled a 27% rise in pre-tax profits to £427.1, which was at the top end of expectations and was boosted by a bumper year from its US operations. On the domestic front, the company said market conditions were best in the north west, south west and Wales. London also saw some improvement but the rest of the south east remains difficult. CEO Iain Napier blamed “everyone including the chancellor and the head of the Bank of England” for continued negative speculation about the health of the housing market. (Times, FT, Telegraph, Mail)
HBF Note: Iain Napier’s comment on this issue is timely. Determined to see his predictions of doom materialise, Roger Bootle of Capital Economics will be talking the market down on BBC2’s “The Great House Price Crash 2005?” this evening at 7pm. The Sunday Times’ economics editor David Smith will be taking a more moderate view.
Wilson Bowden’s Sober Message…
Housebuilders’ margins will suffer without continued house price rises. That’s the message from Wilson Bowden CEO Ian Robertson as he announced a 15% rise in pre-tax profits for the year to December. Like other housebuilders, Wilson Bowden has confirmed a pick up in visitor levels and reservations from the start of this year with 29% of its year-end sales target already sold. But Mr Robertson clearly believes a cautious message is best. He said: “We are not necessarily experiencing different conditions (from other housebuilders) but maybe we are a bit more realistic or cautious in the way we tell it. I cannot see a way that margins will not come under pressure.” (All media)
HBF Note: Well it would be a pity if housebuilders could not announce record results without at least some satisfaction. But Ian Robertson’s distinctly sober message has won respect. As the FT observes: “In what observers thought was the most honest analysis of the housing market so far this results season, Mr Robertson laid out the challenges ahead - lower margins, greater competition and downward pressure on return on capital employed. It sounds bad but by stating the facts up front, Mr Robertson is convincing when he says the company has detailed plans to manage the chillier environment.”
Although George Wimpey announced its results last week, it has not been left out of the positive media comment this week. The Independent said: “A price-earnings ratio of six suggests Wimpey shares are priced for Armageddon. But Armageddon is not likely. Buy.”
Robertson Calls for Action on Barker
Ian Robertson also used his results announcement to highlight once again the chasm between the government’s promises of action on delivery and the reality. He said: “It is disappointing that another year has gone by and things have gone further backward, in part because of recent planning changes. The government wants better-designed homes, lower costs and modern methods of construction. These are conflicting priorities…there is a perception that the early enthusiasm (for planning changes) has waned somewhat. This may not be the reality but there is a paucity of firm action to convince the sceptics otherwise.” (Telegraph)
HBF Note: The truth hurts but it has to be said. Promises and delivery seem to be as far apart as ever as the government - understandably from a political view - tries to sweeten the medicine of demand for more housing by more consultation with those opposed. It was telling that while last month’s “summit” in Manchester was called “Delivering Sustainable Communities”, one of the workshops at the event was called “Zen and the Art of Sustainable Communities” Enough said.
There’s a vicious circle emerging: more panic, more interference, leading to more reasons to stifle delivery.
Return of the Buyers
Housebuilders’ claims of market recovery have been backed up by the Nationwide which reported a 0.5% rise in prices in February. The figures prompted the building society to forecast price rises of up to 5% (but probably much less) by the end of the year. It also believes that there will be a recovery in house purchase mortgages which sank to their lowest level for a decade in January. By contrast, Hometrack said prices fell by a more moderate 0.2% last month. Nevertheless, the mood is clearly brightening and this backs up our industry’s claims of buyers returning in increasing numbers. The downside is further upward pressure on interest rates (See following item. (All media)
More Mixed Signals on Market
Prices slipped 0.5% in February, the Halifax said today, while the Nationwide disagreed saying prices rose 0.5% last month. Although this tells us nothing, the Halifax agrees that buyers are returning with its estate agencies reporting an increase in sales agreed for the second successive month. (BBC)
Pressure for Rate Rise Mounts
Inflation is set to rise above target because of the strengthening economy and interest rates are bound to rise as a result, perhaps before the General Election, says Ed Balls, Gordon Brown’s former Chief Advisor. Most economists disagree that the pre-election hike will occur. But Balls said it was not the Bank of England’s duty to take political considerations into account when setting rates. His views were echoed by Paul Tucker, the lone member of the Monetary Policy Committee to call for a rise last month. Whatever happens, interest rates are now on a knife-edge with conflicting data appearing almost daily. (All media)
Get Your Share of SHG Today
From this week housebuilders can apply for grants from the Housing Corporation to build social housing. The £200m pilot scheme expected to deliver 3 - 4,000 homes by 2008-9, is a dry run to open up the entire £3.6bn worth of grants for 2006-8 to the private sector. The Housing Corporation called the move “historic”. It provides private housebuilders with a unique opportunity to demonstrate they can deliver more affordable housing for each £1 of taxpayers’ money spent than the social sector. Interest from the private sector has been strong. Housing Corporation CEO Jon Rouse said he had received 170 expressions of interest “including from all the major developers that you would expect”. He added: “We need to look at the expertise and skills available in the private and public sectors. This presents us with the chance to dramatically increase the supply of affordable homes using best practice from our widest ever choice of suppliers.” Whilst the Corporation has expects most of the homes built to be passed on to RSLs to manage, it has not ruled out private sector management if bids can demonstrate “clear potential” in social housing management, or by housing associations forming special-purpose vehicles with developers. (FT)
Stamp Duty Pressure Increases
The government has come under even more pressure to help FTBs by cutting stamp duty after the Lib Dems pledged to raise the Duty threshold to £150,000 in an “alternative Budget” they launched this week. The move is the latest in a series of PR campaigns from various organisations demanding ministers help FTBs with stamp duty cuts. (see previous weeks’ WNS) This latest stunt comes a fortnight ahead of the government’s real Budget on March 16. The Bank of Scotland also added its voice to the lobbying campaign, saying the threshold should have been risen to £156,900 to stay in line with house price rises; while the West Bromwich Building Society has delivered a 23,000-signature petition to the chancellor demanding the same.
HBF Note: Pressure on this issue has been building up relentlessly and it will be difficult for the chancellor to ignore. Both opposition parties are now tuned in to the message of helping aspiring FTBs but, as yet, this hasn’t manifested itself to an acceptance for more housebuilding.
European Housing Markets Take the Lead
European housing markets surged last year leaving Britain trailing, according to the Rics. While UK prices stagnated and mortgage demand fell significantly in the second half of 2004, prices, sales, mortgage lending and housebuilding all showed strong growth on the continent with France, Spain and Ireland maintaining double-digit price rises. Even Germany’s long-stagnant market saw an increase in demand for residential mortgages. However, whether this will continue is much less certain, with sluggish economic growth in the Eurozone forecast for the rest of the year. Back home, an increasing number of private investors are backing the stockmarket to outperform house price growth this year. (Times)