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OUTLOOK Gloomy week ahead for UK housebuilders
AFX
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LONDON (Thomson Financial) - The UK housebuilding sector is bracing itself for more bad news next week when four of the biggest residential builders will report on trading.
The whole sector was dealt a huge blow earlier this week after Taylor Wimpey Plc failed to secure fresh equity funding to shore up its balance sheet and said it would be writing down a total of 660 million pounds on the value of its land bank and work in progress.
It also gave a stark assessment on prospects for both the UK and U.S. housing markets. In the UK, private housing reservations fell by 45 percent in the six months to end-June 2008, while total completions were down by a third on the same period last year. In the United States, sales were down by 13 percent on last year and the group does not expect a recovery here until 2009 at the earliest.
Stockbrokers Cazenove said Taylor Wimpey's failure to secure fresh funding was a blow for the whole sector. 'Trading conditions have deteriorated at an alarming rate and we will be reviewing our profit and dividend estimates across the whole sector,' the broker said.
The news caused a bloodbath among UK housing stocks and left many of Britain's top builders nursing significant losses.
Investors will now be turning their attention towards next week's raft of trading statements from Persimmon Plc. (Tuesday), Bovis Homes Group Plc. (Wednesday), Redrow Plc. (Wednesday) and Barratt Developments Plc. (Thursday), which is also thought to be contemplating its own fundraising issue.
Taylor Wimpey had been looking to raise around 500 million pounds through an equity placing with new and existing shareholders, but was unable to conclude a satisfactory transaction which would have helped cut its 1.7 billion pounds of debt.
The company, which like others in the sector has been hit by the credit crunch and the restricted availability of new mortgage finance, especially for new home buyers, also said it would be passing the interim dividend payment for 2008.
Persimmon, which kicks-off the week with a first half trading statement on Tuesday, has already warned of declining sales and volume levels. Total sales for the period from January 1 through to April 24, 2008, were down 24 percent to 1.37 billion pounds, while volumes were 18 percent lower. This position is likely to have deteriorated in recent weeks and investors are bracing themselves for some write-downs on the land bank.
Bovis Homes will follow with its first half trading statement on Wednesday. It has warned that its interim results will be 'significantly lower' than previously anticipated.
The housebuilder said reservations achieved up until the first week of May were down 30 percent on the same period last year. But the sharp downturn in recent weeks means this is likely to have deteriorated further. Swiss broker UBS looks for a 50 percent decline in volumes for the six months to end-June 2008.
Redrow, which will issue a full year pre-close trading statement on Wednesday, recently revised down its completion levels for 2007-08. The group, which had previously been budgeting for 4,200 legal completions for the year to end-June 2008, said it now expects completions to total around 3,800 - a 10 percent decrease on its previous view.
Average selling prices have also come down, while the use of a higher level of customer incentives - including fitted kitchens, carpets and curtains - will result in lower gross margins on home sales in the second half of the year. In the first half, reported gross margins were 18.5 percent.
The most keenly awaited update, however, will come on Thursday when Barratt Developments will issue its full year pre-close trading statement and reveal whether it has been able to renegotiate a refinancing package with its bankers.
Barratt, which has debt of 1.7 billion pounds and a market capitalisation of about 200 million pounds after a 95 percent fall in its share price in just over a year, has already refinanced some 200 million pounds of debt and is aiming to secure another 400 million pounds by July.
However, given the parlous state of the market and the difficulties faced by Taylor Wimpey this week in pushing through its own fund raising exercise, some doubts remain over the terms of any refinancing package. Brokers are also sceptical about any additional fund raising through a rights issue or share placing given Taylor Wimpey's unsuccessful attempt.
As to trading, anlaysts look for total home completions of 18,300 units for the year to end-June 2008. The current earnings consensus is for pretax profits of about 395 million pounds for 2007-08.
malcolm.locke@thomsonreuters.com
ml/ejb
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