If you thought the housing market was heading for a crash any time soon, look at the latest trading update from builder Bellway (BWY) and think again. All the ingredients of the last housing bubble are still there and, like the last bubble, the current one will run and run. Demand far outstrips supply.
Bellway sold a record number of homes in the year to July 31, 13.2% more than in the previous 12 months. The average selling price was 5% higher and margins also improved. The order book ditto. More land has been bought and new sites opened. The outlook is strong.
As with other housebuilders, a lot of good news is in the share price, which has gained nearly £10 from the £15 it stood at a year ago. It’s a bit late to get on the bandwagon but I am not even thinking of taking profits in the two housebuilders I hold, Barratt Developments (BDEV) and Taylor Wimpey (TW.), and I suggest that anyone else with holdings in the sector should take the same attitude.
Postman Patchy
One major reason why I declined to invest in Royal Mail (RMG) for the long term was that I feared it would struggle to compete with private competitors who cherry picked the best routes in and between major cities. My concerns were on the wrong side of the equation, judging from the number of competitors that have struggled or even dropped out altogether.
UK Mail (UKM) is still standing but it is undoubtedly suffering. While parcel deliveries are up 4%, the financial performance is worse, not better. The main problem has been moving the Birmingham hub to Coventry, which has gone badly. Existing customers have been lost and, as everyone knows, it is more expensive to recruit new ones than to keep the ones you already have.
To use the jargon that UK Mail seems to be fond of, this has had “an adverse impact on the parcels mix”. Roughly translated, this means more parcels are being carried for less revenue, a pretty unattractive state of affairs. The near term challenges and the impact on the current year’s performance are more significant than anticipated and profits will be materially below expectations, UK Mail says.
This is a serious profit warning and who knows when, if ever, the situation will improve. Customers lost in the chaos of the move will be hard to win back.
UK Mail shares were 605p a year ago but they took a tumble in October and November to 390p. Investors who ignored the warning sings then and pushed the price back up to around 530p were foolhardy. They dropped 40p on the latest announcement. You buy at your peril. They have further to fall.
Interest Rate Announcement is Let-down
Whoever thought up the soubriquet Super Thursday for the day we got three Bank of England pronouncements crunched into one should be taken quietly in one side and put out of his misery. The build-up was always likely to lead to a let-down, and so it proved.
I do favour the idea of giving us the voting figures on interest rates alongside the decision itself. I have pointed out in this column in the past that it was barmy waiting another two weeks to release this important figure immediately.
The surprise was not that one member of the monetary policy committee crossed the floor and voted for an immediate increase. I had expected two members to switch. Thus the second vote for a 0.25% increase will not come until September and the actual rise has actually been delayed. It will take longer for three other, more cautious members, to succumb. The renaissance of the UK economy is thus not under threat from a premature move.
