15 December 2016
Week In Brief: BUSINESS AND THE CITY
HOUSING DEVELOPMENTS (SOUTH): This week the Office for National Statistics issued the results of its rolling survey of house prices. That showed that the long period of increasing prices seems to have come to an end – with static prices in some areas and a slowdown in the rate of increase in others. In London though, the picture was clearly of a decline in prices at the top of the market which is starting to ripple down into the less eapensive parts of the sector. This confirms anecdotal evidence over most of this year that developers are finding it harder and harder to shift newly built stock, and that lower quality pre-owned properties are having to be discounted to get sales away. Rumours are that of the £1m plus properties for sale this year only some ten to fifteen per cent have sold. This is in a market where two years ago pre-sales were the norm on new properties, rapid decisions essential and gazumping common in the second hand market.
Estate agents in the capital have been quick to blame a whole range of factors for the tricky conditions, top of the list being Brexit, which some were blaming even before the Referendum, and also the measures introduced by George Osborne when Chancellor to increase tax revenue from the booming market. The main one is heavy increases in stamp duty for high value residences – more than 10% of the purchase price now goes on stamp duty. But tax treatments generally are less favourable, especially for private landlords. On the other hand, residential mortgage rates are the lowest they have ever been, so it is not clear how much of an issue affordability really is.
Looking back over the last year, prices in the south east of England had gone up nearly 10% (London rather less) so perhaps it is not surprising that there has been a reaction in demand and pricing – especially with the large increase in supply of new units in the £2 million plus bracket. However, all is not totally black, at least not for high value residential landlords – values may be falling but rents, pretty much stagnant for a couple of years, seem to moving up again, as the supply of space to rent falls.
HOUSING DEVELOPMENTS (NORTH): Bellway, the FTSE quoted builder of lower and medium priced housing based in Newcastle on Tyne, and now the fourth largest housebuilder in the country, takes a different view of the housing market. In a review of the last 18 weeks of trading it noted that reservations of new houses and flats was up 7% – which means it is running at 176 a week over the period. Bellway says everything is looking good from its perspective and cites the very competitive mortgage market which is helping with affordability, adding that government help to first time buyers is not only helping demand in that segment of the market, but also pushing along liquidity further up the chains. Last year Bellway sold 8,700 units; this year (to end July 2017) it expects, if things continue as they are, to push comfortably over 9,000 units. The company is putting its money where its shovel is; the dividend has been increased again – it will be 40% up on last year; and Bellway is actively buying land after pausing over the summer to review the results of the Referendum. It has spent £260m already this autumn – that’s a serious commitment to the ongoing strength of the market.
GO EAST: One of Britain’s great success stories is Dyson, the household appliances company. Dyson has combined strong design with innovative technology and powerful marketing to enable it to sell premium products on a large scale. Sir James Dyson, the founder, whose family still owns the business, has recently been buying very large quantities of farmland in the UK – he is becoming one of Britain’s largest agricultural landlords in a manner that would have been very familiar to Victorian entrepreneurs. But Sir James remains highly committed to his business and to technology, and sees many opportunities for further product development and expansion. The next reach out will be not in the UK, but in Singapore, where he has just announced a £330m investment into a major research plant which, when built, will employ 500, mainly scientific and technology staff. Much of Dyson’s manufacturing is already done in the region. The UK became too expensive to be competitivesome years ago but the company still has its major research base at Malmesbury in Wiltshire; it too saw major recent investment, of £250 million. This new base will allow Dyson to reach into Far Eastern with developments and expertise in the electricals sector – especially in electric motors and control systems, further underpinning the apparently well-grounded rumour that Dyson is working on the development of an electric vehicle.
BOWLING THE INVESTORS OVER: A business not previously covered in these pages is that of bowling. Not the sort requiring level green turf and a sunny afternoon, but the more mechanical one that goes on in large sheds, mostly on retail and leisure parks outside city and town centres, tenpin bowling. The sector went through a big expansion before the recession hit, and the downturn in leisure spending knocked some of the operators over, but now it is once again the focus of popular evenings out for many groups, especially the young, who also oblige the operators with some good auxiliary spending on food and drink. The biggest operator is thought to be Hollywood Bowl, which went public earlier this year raising £180m, and has just issued its first set of results. They were not great reading – profits halved from a touch under £5m the previous year although revenue was 24% up. That was due to Hollywood buying some bowling centres from its rival Bowlplex – and the company blamed that acquisition for the poor profit performance. It said that advisory and statutory costs on the purchase made a serious dent in cashflow, as did the costs of listing, but it expects next year will be better. The peak period for this indoor leisure business is the winter, so investors will be waiting to see what the company has to say next spring.
NO READING ALL ABOUT IT: The Daily Mail and General Trust is an unusual business – although traded on the London Stock Exchange all the voting shares are owned by the family trusts and interests of Lord Rothermere, descendant of the founder, which own just 24% of the shares overall. As well as its media interests, the business has a diverse portfolio of other investments, originally centred on North Sea oil, but now increasingly focussed on information supply and management – the core being a big holding in Relx. Just as well – the recent results show that the Daily Mail part is struggling with falling sales and advertising revenues, and costs continue to push up as the group attempts to monetise its digital offering. So the media business now accounts for half the turnover but only 20% of the profits. It is not alone – that is a common pattern in all newspaper groups now.
KEY MARKET INDICES: (as at 13th December 2016; comments refer to changes on last 7 days; $ is US$)
Interest Rates:
UK£ Base rate: 0.25%, unchanged: 3 month 0.38% (steady); 5 year 0.85% (rising).
Euro€: 1 mth -0.37% (steady); 3 mth -0.32% (rise); 5 year 0.02% (rising)
US$: 1 mth 0.68% (rising); 3 mth 0.96% (rising); 5 year 1.86% (rising)
Currency Exchanges:
£/Euro: 1.19, £ rising
£/$: 1.28, £ steady
Euro/$: 1.067, € falling
Gold, oz: $1,165, slight fall
Aluminium, tonne: $1,749, rising
Copper, tonne: $5,755, slight rise
Oil, Brent Crude barrel: $56.11, rising
Wheat, tonne: £135, steady
London Stock Exchange: FTSE 100: 6,939 (rise). FTSE Allshare: 3,768 (rising)
Briefly: Generally an active week with oil again leading the way as the price continues to strengthen, though with considerable volatility as rumours as to the reactions of non OPEC members, particularly Russia, continue to circulate. Copper continues to edge up, a remarkable turnaround, as do dollar interest rates, not so remarkable.
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