Comment: Housebuilders are cresting new mini–wave

Martin Flanagan

HOUSEBUILDER Crest Nicholson’s strong annual results testify further to the rude health the gritty industry is in after several years of rather more prosaic activity: essentially costcutting to protect margins in a bleak housing environment.

Many of Crest’s rivals have shown similar renewed vitality, undoubtedly fuelled by government initiatives like Funding for Lending and Help to Buy.

The latter provides help to homebuyers – the lifeblood of the housing sector – who have mortgage deposits of just 5 per cent. Demand has been stimulated and housebuilders have re-entered the empty space with vim.

The notable change in the backdrop has also led to a reversal in the stock market fortunes of many housebuilders. Most of them now have higher price/earnings multiples, reflecting what the market sees as support for new housing across the political spectrum.

Crest capitalised on this change in market sentiment towards the sector by floating again last February after a chequered history.

The business spent nearly four decades on the stock market before being taken private by Scottish retail magnate Sir Tom Hunter and Bank of Scotland in a £715 million deal in May 2007.

Hunter and BoS’s timing was poor, right at the top of the market before that summer’s credit crunch and the 2008 financial crash, and before the tide went out to show BoS had been swimming naked in the property lending sea.

Of the money raised at last year’s flotation, £169m went to existing shareholders, mainly private equity and Deutsche Bank.

But Crest also used some of the money to pay down debt and buy more land to exploit the possibilities of the new mini-boom in housing. The housebuilder is far from alone in believing the beefing up of the landbank is now a clear focus.

For the company there is a pleasing symmetry in that the latest annual results show a 40 per cent leap in profits while shares in the company are trading 40 per cent higher since its new public listing. Crest’s revenues are up nearly 30 per cent and its average selling price up nearly 10 per cent.

The whole sector can be sanguine, particularly if the planning system is freed up further to address Britain’s shortfall in housing capacity.

The one caveat is if another housing bubble develops and pops. But the government seems alert to that danger, having recently cut back the Funding for Lending Scheme to just business lending rather than mortgages.

That proviso apart, Crest and British housebuilding rivals such as Taylor Wimpey, Persimmon and Redrow look to be making hay while the sun shines.

SLI right to wait and see on F&C future

BMO Financial’s takeover of F&C Asset Management, a dowager of the fund management sector, is pitched 28 per cent above F&C’s closing share price at the end of last week.

As such, it is far from corporate larceny. But the decision by Edinburgh-based Standard Life Investments to sit on its hands in case a higher rival higher bid emerges show how effectively corporate raider Ed Bramson overhauled the underperforming F&C in 2011.

Even though Aviva, which owns 12 per cent of F&C’s shares, and management have accepted the offer, nothing is lost by waiting to see if another suitor surfaces.

Twitter: @martinflanagan8