Looking towards recovery as new house orders build

Published on Saturday 20 June 2009 14:46

HOPES are high that investor interest is returning to the long-suffering housebuilding sector after Taylor Wimpey announced a 73 per cent surge in orders.

Taylor Wimpey shares leaped 9 per cent on the FTSE 250 on Friday after it reported that it had seen signs of recovery in the UK housing market. The news lifted the wider housebuilding sector and markets regained ground following steep falls earlier in the week.

The FTSE 100 slumped below 4,300 midweek as investors grew nervous about the stronger dollar hitting oil and metal prices. But encouraging economic data from the US saw the FTSE recover to 4345.9 by Friday, down just 96 points on the previous week.

Housebuilder and property developer Berkeley will provide further insight into the housing market on Friday when it reports full-year figures.

So far it has avoided making any of the land-bank write-downs that have damaged its peers, and the City is not expecting any in the future .

Although profits fell 12 per cent to 79.6 million at the half-year, the company has bolstered its cash position. Net cash had risen to 236.1m at the end of January against a net debt of 4.5m last April.

Analysts expect the group to start taking advantage of depressed land prices to snap up bargain sites.

Analysts at UBS said it is "very well positioned to buy land at the bottom of the cycle", although this may have an impact on shareholder dividend payments.

They expect earnings for the year to 30 April to fall to 117m from 207.8m a year earlier.

But they added: "Berkeley has the greatest flexibility in the sector to create value."

Currys and PC World owner DSG International is expected to deliver further grim news from the retail sector when it posts annual results on Thursday.

At the end of April, DSG announced it planned to raise 310.6m to strengthen its finances and accelerate its programme of store revamps.

At the time, it estimated underlying pre-tax profit for the 52 weeks to 2 May would be "not less than 42m" – just a fifth of the 205m posted for the previous year.

DSG also needs the funds to boost cashflow after increased pay-outs to suppliers sent net debt soaring to more than 500m.

The UK and Ireland electricals business saw comparative sales slide even further – down 12 per cent – while like-for-like sales in UK computing slumped 14 per cent.

Excluding the revamped stores and the internet, management are braced for negative like-for-like group sales until the second half of the 2010/11 financial year – meaning a recovery could be at least 18 months away.

Comet parent Kesa Electricals is expected to post a dramatic plunge in profits when it announces its annual results on Wednesday, but recent positive news from the sector could provide hope for an upturn.

The firm reported a 7.3 per cent fall in like-for-like Comet sales between 9 January and 30 April and comparable sales dived 7.7 per cent in the full year to the end of April as consumers cut spending on "big ticket" and electrical goods.