Scrutineer: Wimpey's wary recovery

Published on Friday 19 June 2009 21:06

Taylor Wimpey 33.5p +2.5p Dawson 6.13p -0.87p

TAYLOR Wimpey's latest trading update typifies the mixed messages currently coming from the housing industry.

The positive is that the most apocalyptic scenarios for the sector now seem less likely.

But, nevertheless, housebuilders are virtually unanimous in saying that the market is likely to remain subdued due to bleak economic prospects and surging unemployment.

Taylor Wimpey says it has seen more stability in the housing market in the past six weeks and is considering increasing the number of new sites in the second trading half – clear signals that it no longer expects the most severe downside scenarios.

The company says prices are flat and cancellation rates are below the long-term average.

And while there are still problems with mortgage availability in the wake of the banking crisis, Taylor says there are signs that the situation is improving.

The group's order book is also up 73 per cent at 971 million from its end-2008 level.

However, against the backdrop of the recession and rising unemployment Taylor says it is cautious about prospects "until the profile of any recovery becomes clearer".

It is a similar, if slightly more upbeat, message to that which came from Taylor's housebuilding rival Persimmon recently.

Persimmon chief executive Mike Farley said sales volumes in the spring were ahead of the same period last year and that cancellation rates had come down to about 16 per cent from 35 per cent in the last quarter of 2008.

However, Farley was clear: "No, these are not green shoots. The housing market is still fragile."

It is difficult to see the debt-laden housing sector (even with rescue rights issues like Taylor's 533m cash call on shareholders last month) doing anything than tracking the wider economy.

And so just as the gathering consensus now is the economy has troughed, but any recovery will be subdued in 2010, that also looks the probable prospect for the housing industry.

A probable peak of three million unemployed by the end of this year and a very gradual return to personal and business lending by the recuperating banking sector is hardly the backdrop for a housing bounce.

As a period of economic stagnation normally follows recession, that is also likely to be played out in the housing market.

We may be seeing some stability now, and at least the sector is no longer in free fall. But actual recovery is likely to be incremental and drawn-out.

IT KEEPS getting worse for the hapless news and magazine distributor Dawson Holdings.

The group's battered shares hit a new 52-week low of 6p yesterday as a further 11 per cent was wiped off the stock on news that it is to lose another key contract.

Dawson said News International Distribution is to stop using its services almost immediately.

It follows a flurry of other contract losses for the Dawson – the News International one being worth about 30m.

Recently Marketforce and Trinity Mirror said they would not be renewing their contracts with the group, following on from other lost deals with Associated Newspapers and COMAG.

Dawson has also already said it expects its contract to distribute the Telegraph titles to be terminated in the autumn.

RECRUITMENT firm Harvey Nash has its outsourcing division to thank for providing some relief amid the cheerless jobs market. The company, which lowered City profit expectations for the current year in February, revealed yesterday that it managed to grow revenues 3 per cent in the three months to end-April as clients take on fewer staff but look to cut costs through offshoring and outsourcing.

Harvey Nash, whose UK network includes an Edinburgh office, offers outsourced software services based in Asia to blue-chip clients across all sectors.

Another plus for the company is that it is cash-positive after paying off all debts in January 2008 – a move that looks very sound in the current climate.

The downside is that Harvey admits visibility on earnings remains very limited and outside the UK it has strong exposure to the US and mainland Europe – both regions still in the grip of rising unemployment linked to recession.

The compensations of the outsourcing business are one of the main reasons for the resilience of the stock. It is currently trading near 52-week highs.