Comment: Building on solid foundations

By MARTIN FLANAGAN
Published on 22/08/2012 00:00

THE strong interim results performance from Persimmon, the biggest housebuilder in Scotland, spotlights the pretty impressive turnaround in the industry’s fortunes after the prolonged period of profit falls and rising debt burdens triggered by the 2007 credit crunch.

Persimmon, announcing a two-thirds jump in profits and a return to a cash-positive position, has also seen legal completions and average prices move ahead.

Moreover, it is has been achieved against the headwinds of cautious lenders still enforcing tough home loan conditions and a stagnant UK economy.

Persimmon added a full three percentage points to its profit margins, after arguably introducing a game-changer to the sector earlier this year by vowing to return £1.9 billion to investors in divi payments and share buybacks over the next nine years.

Browbeaten housebuilders have re-emerged as safe haven yield stocks. Persimmon is not alone. Housebuilders have used the dog years to jettison under-
performing businesses, cut costs and debt mountains, conserve cash and boost returns.

A focus on regions where house prices have remained resilient has put a tailwind behind Bovis Homes, which earlier this week reported doubled profits and an 18 per cent increase in homes completed in the first half of 2012.

Redrow has a new spring in its step, while Taylor Wimpey, formed at the worst possible time from the merger of George Wimpey and Taylor Woodrow in 2007 (the year Northern Rock collapsed), has shown a fleeter turn of foot with stronger operating profits and a return to double-digit margins.

The sector is no longer a hospital in-patient.

Austerity pain but no gain puts pressure on Osborne

WHEN will the austerity age end, then, actually? It is looking as if its likely duration will make the interminable Leveson media inquiry look, by comparison, like a brief jaundiced chat about journalistic ethics in the pub.

George Osborne’s economic strategy – if I ain’t cutting it ain’t working – was battered again yesterday, as the public finances showed a deficit in July of £557 million. That compared with a £2.8bn surplus in July 2011.

It clearly gives ammunition to the critics of undiluted government austerity that the Chancellor is cutting, but it ain’t working. We are getting the pain, but not the gain.

Austerity currently feels like doing your homework and still getting detention.

Soros’s late goal is a winner for the Glazers

THE Glazer family used Manchester United’s own money to buy the club, and launched a puzzling Wall Street-based flotation rather than use financial markets in football-mad Asia to again partly pay down the debt on the acquisition.

But the Stretford End American hate figures will take solace from investment guru George Soros taking a near-2 per cent stake in Man U. Soros still has talismanic status among US investors. Soros voting with his feet will help a flotation that is in need of support.