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Opinion: Chris Wright
Construction sector not as sick as it seems
It may be silly season in the national press at the moment as they scramble for stories to fill the pages but the summer months provide the latest reporting and insight in to the health and performance of many of our listed construction companies. The interim reports make mixed reading.
Whilst the house builders buck the general economic and sector specific trends, disclosing improving revenues, margins and order books, and negating the need to cite poor weather and a lack of government help to explain further lacklustre performances to the city, delve a little deeper and there remain signs that the sun isn’t shining quite so brightly for them too.
The first half of 2012 has seen an end to the stamp duty holiday (for homes with values between £150,000 and £250,000) and effects of the implementation of the government backed FirstBuy scheme, both driving temporary activity increases in a depressed market place. Although NewBuy replaces FirstBuy and this should help our house builders, first time buyers are still finding times tough.
Furthermore, large geographical discrepancies in performance predominate. Demand in London and the South continues to drive the reported improvements in average selling prices and volumes whilst the Midlands and the North weigh a burden on company performances. Will we see increased competition in the South and falling margins as everyone scrambles for the same attractive plots? Land expenses are already forming a greater proportion of cost of sales in some house builders’ accounts.
For the consumers, stagnant wages, economic uncertainty and poor mortgage availability for first time buyers all prevail, with few signs of improvements in the near future – rain could still return and fall on the home building market too.
However, confidence (or humour!) within the sector appears not to be completely lost. Persimmon announced bold intentions to return £1.9bn of surplus capital to shareholders over the next 9 years, commencing with a 75 pence per share payment in June 2013. This equates to a £227m payment, almost double the cash reserves reported on their balance sheet for 30 June 2012.
Let’s hope mortgage availability and the NewBuy scheme fuel housing affordability otherwise there could be some angry shareholder knocks on Persimmon’s front door.