Monday, 8 April 2013

Help-To-Buy and the housebuilding market


Help-To-Buy only applies to new builds
The shares of the housebuilding companies have performed very strongly over the last twelve months and have recently been given a further boost by the Government in the Budget. The scale of the new Help-To-Buy scheme introduced in the Budget Statement surprised the market and is expected to boost volumes by at least 5%. This should feed through directly into the housebuilders’ profits, which have already seen a good recovery on the back of increasing proportions of lower cost land purchased post 2008. The question is whether the housebuilders will deliver what the Government wants in terms of new housing output, and risk seeing margins slip again, or whether they will hold down supply so that prices and profits increase.

Current market conditions appear positive, with companies looking more financially robust than ever before, but the sector's cyclical nature remains and we believe that there could be the first signs of a possible asset bubble looming. We believe the key is, as is so often the case in investment, to look at the cash. Who is generating it and what is it being used for? Thus it is recommended that, with some of the multiples looking unsustainably high, it is time to take some profits.

Our recommendation is to stick with the companies that have proved adept in dealing with the cycle in the past and where the cash position provides a degree of comfort. If there are plans to return cash to shareholders, this should be seen as positive.

Stephen Williams
Divisional Director - Head of Mid Cap Equity Research

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