5 housebuilders laying the road to recovery

Friday, Oct 12 2012 by
5 housebuilders laying the road to recovery

With the luxury of hindsight it’s pretty clear that UK housebuilders were heading for a perfect storm in the run up to the 2007/08 stock market crash. Not only were they to find themselves at the wrong end of a bank-led recession, but as the market peaked many were overbought, over indebted and over optimistic that the good times would carry on. In the year-long value tailspin that followed, housebuilders and their investors got savaged.  

In the aftermath, at least as far as share prices go, the housebuilding and construction sector entered a period of post-traumatic inertia. As it stands, opinions are sharply divided on whether the sector is on the road to recovery or whether the threat of falling house prices means it’s a risk too far for many investors. 

On one hand, mortgage lending rates – which are widely blamed for depressed sales of new homes – remain low. Likewise, government efforts to grease the lending wheels and chivvy buyers with initiatives such as NewBuy and the Funding for Lending scheme are too embryonic for their impact to yet be fully known. Meanwhile, critics have pointed to the proliferation in recent years of so-called shared equity schemes as a cause for concern. These deals involve housebuilders ‘lending’ buyers something like 25% of the cost of a new home in order to smooth mortgage application process. As a consequence, housebuilders have increased their exposure to the risk of falling house prices. 

The counter argument from industry watchers, indeed the housebuilders themselves, is that a ‘stable’ housing market is all they need. As long as house prices and mortgage lending don’t fall, then housebuilders can still turn a profit – indeed, that’s just what they are doing. On this point, there are factors in their favour, not least the perennial problem of an undersupply of new housing in the UK. During the downturn the emphasis changed to building higher margin family homes (rather than apartments), particularly around London and the South East where demand is higher. In addition, the downturn presented an ideal opportunity for housebuilders to buy up land (often at distressed prices), which analysts suggest is now feeding into the latest financials. 

While general sector sentiment is uncertain, one of the patterns emerging is that construction companies are showing increasing signs of fundamental and technical strength. A year ago, a group of construction companies…

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Persimmon Plc is a United Kingdom-based holding company. The Company is engaged in house building within the United Kingdom. The Company trades under the brand names of Persimmon Homes, Charles Church, Westbury Partnerships and Space4. The Company offers a range of homes from studio apartments to family homes in approximately 400 locations under Permission homes brand. The Company builds homes tailored to local markets under Charles Church brand. The Company focuses on social housing and sells these homes under Westbury Partnerships. The Company's Space4 business operates the automated timber frame manufacturing plant in the United Kingdom. The Company owns approximately 17,700 acres and over 54,300 plots. The Company operates through a network of approximately 30 regional offices. more »

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Telford Homes Plc (Telford Homes) is a United Kingdom-based company, engaged in property development. The Company is engaged in housebuilding in the United Kingdom. The Company's projects include Avant-garde E1, Bermondsey Works SE16, Hackney Square E9, The Boatyard E14, The Junction E1, Manhattan Plaza E14, Cityscape E1, Horizons E14, Lime Quay E14, Parkside Quarter E14, Parliament House SE1, Stratford Central E15, Stratford Plaza E15, Stratosphere E15, The Town Apartments NW5 and Vibe E8. more »

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Bovis Homes Group PLC is a United Kingdom-based builder of homes in England and Wales. The Company's business is involved in the design, build and sale of new homes for both private customers and social landlords. The Company offers a portfolio of properties, ranging from one and two bedroom apartments to five and six bedroom detached family homes. The Company carries out and manages a range of housing development activities, from the purchasing of the land through to the building of the homes and the after-care service for its customers. The Company focuses on developing various activities, which include land acquisition, planning, legal, design, surveying, engineering, purchasing, construction, sales and marketing, public relations and customer service. more »

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  Is Persimmon fundamentally strong or weak? Find out More »

1 Comment on this Article show/hide all

Ben Hobson 16th Oct '12 1 of 1

Bellway did better than expected - keeping that momentum going. http://www.ft.com/cms/s/0/ad37bd5c-175b-11e2-8cbe-00144feabdc0.html#axzz29NJTaayd (£ subscription)

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About Ben Hobson

Ben Hobson

Strategies Editor at Stockopedia. My goal is to help private investors learn and invest with confidence through the articles, ebooks and other resources we publish on site. I also occasionally bunk off to interview famous investors at expensive restaurants. I studied History at Aberystwyth University, trained as a journalist and covered business news and corporate finance before settling in as one of the first staff members at Stockopedia.  Away from Stockopedia I'm a mountain bike junkie. more »


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