Building Blog

Is Mrs Pidgley missing her horses?

April 29th, 2009

By Tom Bill

Diamonit - one in the Pidgley's former collection of thoroughbreds

Earlier this week the wife of Berkeley boss Tony Pidgley sold 250,000 shares in the company. It leaves her with just over half a million but at £9.60 a pop she netted £2.4m from the deal.

The wife of FD and Pidgley protege Rob Perrins offloaded the same amount and director Tony Carey bagged £960,000 by selling 100,000 shares.

Guessing the reason behind the sell-off is a futile task but share dealing that involves the man whose every move is watched closely by other housebuilders and the City is a fun sport.

Earlier this year the Pidgleys sold their entire collection of award-winning horses and Dressage Daily reported that it was to allow Mrs Pidgley to spend time with her family for the next three years.

Could it be she’s missing life in the saddle and now has her eye on a new steed?

More plausibly perhaps the sell-off could be interpretted as Tony Pidgley thinking housebuilder share prices have run too far in recent months.

He tapped the market for £50m earlier this year and since February Berkeley shares have climbed from 760p to over £10 on the back of improved sentiment towards the sector as a whole.

But most agree it won’t last as unemployment bites. “It shows he thinks the bottom of the market isn’t here as he previously indicated,” said one analyst.

Possibly, but the bottom of the housing market in London and the bottom of the share price cycle are not necessarily the same thing.

“It could be that they sold their shares simply to diversify their interests,” said another analyst.

Equally plausible but far less exciting.

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Output figures signal more bad news

April 27th, 2009

By Noble Francis

The ONS released preliminary estimates of GDP for the first quarter of 2009 and it wasn’t pretty. Estimates from macroeconomic forecasters had suggested that GDP would fall 1.5%-1.6% in Q1 compared to the previous quarter. In fact, it was 1.9%. Within the GDP fall in the first quarter, construction fell 8.6% in 2009 Q1 compared to a year earlier and manufacturing fell 12.3% compared to a year earlier.

We won’t get final figures till June but even if there are revisions, they are likely to be relatively slight and the extent of the falls is so great that it highlights the poor state of the economy and our industry particularly.

Looking back to the budget, and trawling through the full 260 page document, there are not many thoughts to add over and above those I made on this blog the day of the Chancellor’s speech except that it was very disappointing overall. Read more >

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Budget 2009: Draw your own conclusions, if you can

April 23rd, 2009

By Tom Bill

OK, how much do you want?

“I can’t quite decide whether it was smoke or mirrors,” said KBC Peel Hunt analyst Robin Hardy in summing up yesterday’s Budget.

Most observers said the Chancellor’s economic growth forecasts were chipper to say the least and when asked to pick out the positives, there was generally an uneasy silence at the other end of the phone.

So, first of all housing.

The good news was the £50bn mortgage backed security guarantee scheme, which will initially run to October.

The bad news is that the take-up is expected to be nowhere near £50bn.

Under the plan, banks can bundle up and sell off mortgage debt and a third of lending was funded in this way before the world economy was brought to its knees.

The cynical would argue it was similar ”bundling up and selling” of mortgage debt that brought the world economy to its knees in the first place.

Charlie Campbell at Liberum Capital questioned the appetite to buy mortgage debt, even though it was underwritten by the government and the banks themselves appear to think take-up will be poor.

Hardy added: “There’s about £240bn of government debt to be issued elsewhere and the terms may be more attractive.”

And what of the £400m to kick start stalled housing projects?

The money will be spent on upfront infrastructure costs on mothballed sites. But aren’t mothballed sites mothballed for a reason? The housebuilders don’t want to commit to building anything they are not sure they can sell.

As Persimmon reminded us this morning in a trading update: “pricing and margins remain under pressure”.

For the contractors there was even less to go on.

Capital spending as a proportion of GDP will halve from 2.6% to 1.25% by 2013/14.

But Kevin Cammack at Cenkos Securities said there was little to be gleaned from that.  “Any spending forecasts beyond next year’s election are not worth the paper they’re written on.”

Within that nebulous forecast, there is even less clarity on how deep cuts may be from the school or hospital building programme.

Although you’d think any government would choose to leave a few potholes in the road rather than suffer the bad PR of an unbuilt hospital wing or academy.

For small businesses the top-up scheme for credit insurance will be a help provided companies can get it in the first place or it hasn’t been slashed so far that government match-funding will be meaningless.

The tax deferral scheme whereby businesses can shelve tax payments and the ability to carry back losses against past profits  will stop some businesses going under. For now anyway.

And perhaps that’s the plan – if unemployment hits 4m the government would be under even more pressure than it is already.

But that political goal could slow eventual recovery. The flipside of capitalism is that it will kill weak businesses. The government wanted unbridled capitalism on the way up but doesn’t appear to on the way down.

As Hardy says: “The reason the recovery was so strong after the last recession in the mid 1990s is because a lot of inefficiency had been taken out of the economy.”

As today’s front page of The Sun said: “At least it’s sunny“.

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Welcome to Building's expert economists

April 23rd, 2009

By Thomas Lane

Welcome to Buildings new economic panel. We have assembled a panel of experts to help make sense of these fast moving and uncertain economic times. They will regularly comment on economic developments as they unfold and give an insight into what these might mean whether it’s and event as big as today’s budget or a simple increase in the price of plastic piping. We have chosen budget day, the biggest day in the economic calendar to launch our panel. Our regular contributors are:

Maren Baldauf-Cunnington is a construction economist with cost consultant Davis Langdon. She is based out in Dubai and is ideally positioned to give up to date comment on events in the region as well as the rest of the world.

James Hastings is head of construction at the market intelligence side of business information specialist Experian.

Noble Francis is economics policy development director at the Construction Products Association.

Graham Kean is the head of public sector at cost consultant EC Harris.

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Budget 2009: initial thoughts

April 23rd, 2009

By Noble Francis

Budget day as ever was interesting and obviously, the devil is in the detail, especially when it is bad news. However, the Chancellor’s speech and the Budget document provide us with some initial thoughts.

The macro figures are as bad as expected and potentially worse; £175bn public borrowing in 2009/10 and £173bn in 2010/11

However, the £173bn is based upon very optimistic GDP growth forecasts for 2010. The chancellor is more optimistic than most forecasters, with expectations of 1.25% GDP growth in 2010 and 3.5% growth in 2011. The majority of forecasters are forecasting marginal growth or contraction for the economy in 2010 and if he is, as we suspect, too optimistic, then tax revenues will be significantly lower than expected (income tax, corporation tax, oil revenues, stamp duty) and expenditure will be considerably higher (social security payments). The problem with this is that it means that either public borrowing will be even higher than expected next year or capital spending will be cut. Potentially both. And this could have a significant impact on a construction industry already enduring its worst recession on record.
Read more >

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Brace for public investment cuts

April 23rd, 2009

By Maren Baldauf-Cunnington

Three things stood out in yesterday’s Budget: First, the shocking state of UK public finances, second, the Chancellor’s gambling on a very rapid rebound of the economy to make his numbers add up and third, that the construction industry will almost desperately hope for private sector demand to return by 2011, as from then public capital investment will be fiercely squeezed.

There were some big numbers indeed in the Budget, almost exclusively reserved for public borrowing and government debt. The Chancellor forecasts net borrowing to jump to an eye-watering £175 billion (12.4% of GDP) this year, a figure unthinkable only a year ago, when the forecast was for £38bn. Public finances will not return to comfortable levels until 2017/18 – at the earliest. Read more >

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What's in the budget for construction?

April 23rd, 2009

By James Hastings

Snap analysis immediately after the event tends to be prone to knee-jerk reaction, but the thing that immediately springs to mind about this budget is the optimism regarding GDP growth in 2010 in 2011. While I wouldn’t neccessarily argue with a 3.5% decline for this year, 1.25% growth for 2010 seems a little on the high side, and 3.5% for 2011 excessive. The Treasury’s own analysis of independent forecasts for 2010 gives a median of 0.3%, although admittedly there are a considerable range of viewpoints.

As always these days, the 2009 Budget was somewhat construction lite, public expenditure plans now usually being announced in the pre-Budget report in November. However, the £600m of extra funding to free up housing developments will be welcome, although until demand picks up considerably more than the recent small uplifts indicated in latest transaction and approval figures, activity in the private housing sector is likely to remain low.
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Budget reaction: The impact on built assets

April 22nd, 2009

By Graham Kean

The Budget has placed built assets at the heart of nurturing economic recovery, achieving efficiency savings and delivering better public service outcomes. 

The Chancellor is now forecasting a budget deficit of £175 billion this year and £173 billion in 2010/11, peaking at 79% of GDP in 2013/14. He is also forecasting a contraction in GDP of 3.5% this year and an optimistic rebound to growth of 1.25% in 2010.  The fact that the black hole of public spending is now not forecast to be closed until 2017/18 indicates that the post election Chancellor will need to introduce a further significant wave of efficiency savings and tax increases.

Central Government
The further increase in Treasury efficiency savings set out in Lord Carter’s review yesterday sets a tough challenge.  Even with the assistance of the new central property function it is difficult to see how this will be achieved without a major reduction in back-office functions and a greater focus on shared services all under-pinned by new and clear asset management strategies. Read more >

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Taylor Wimpey: How long before it does the 'rights' thing?

April 8th, 2009

By Tom Bill

A £400,000 Ferrari Enzo: Taylor Wimpey now pays the equivalent each day in interest

When Taylor Wimpey announced that it had all but dotted the i’s and crossed the t’s on its £1.6bn refinancing deal yesterday, there was a palpable sense of “thank God for that” around the City.

The 10-month marathon had been brought to an end and when one deal insider was asked by Building for a quote, they replied:  “Aren’t you bored of writing about this yet?”

So, the company lives – and that’s all yesterday’s announcement really tells us.

That and how tough it is to get money out of the banks at the moment.

At a whacking interest rate of 9% it will cost them about £144m a year to service the debt. That’s £395,000 every single day in interest – or one  Ferrari Enzo. Roughly. That must really sting when the base rate is 0.5%.

They’ll clearly need to get selling some houses fast.

As one analyst said: “It shows other housebuilders that they really don’t want to go back to the bank in any way, shape or form because they’ve missed covenants.”

But selling houses is not simple in this market and so a rights issue looms large. It’s a complicated bit of number crunching but if they fail to raise £350m by 2010 it will hit them in the pocket by about £80m a year.

It’s a no-brainer surely.

The question is when they go to investors. Waiting for the share price to rise in order to raise proportionately more cash could prove risky but investors will not be massively interested until the market has some semblance of stability in it.

The whole mess must leave TW finance director Chris Rickard wondering what his predecessor Peter Johnson was playing at during his 21 months at the company.

Poor management and accounting systems at TW have repeatedly been blamed for the excruciating delays in getting the deal done.

Some suggest Johnson was only made FD at all because he came from Taylor Woodrow and was used to strike a balance in the boardroom after the meger with George Wimpey in 2007.

Either way, Rickard has had to come and pick up the many pieces and you wonder whether he’ll stick around or he’s had enough after being parachuted in by the banks last October.

Another deal insider was asked whether Rickard had ever cursed the mess he had inherited.

“He doesn’t strike me as the cursing type,” they replied drily.

You’d have thought he would be quietly swearing under his breath at this mess though.

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