The Peak District became the UK’s first national park on 17 April 1951; albeit the National Trust owns a 12% minority. Geographically, it forms the southern end of the Pennines and much of the area is uplands above 300 metres (984 feet) with a high point on Kinder Scout of 636 metres.
It is an area of great diversity, too, which is split into the northern Dark Peak, where most of the moorland is found and the geology is gritstone, and the southern White Peak, where most of the population lives. The Park is startlingly beautiful and attracts more than 10 million visitors per year. But it can be dangerous climate-wise and taxing with a dramatic terrestrial rise and fall.
Judgment, prudence, being fit – and an accurate weather forecast – are essentials for survival; and yet, the local Edale Mountain Rescue Team is called out 120 times a year.
In Q2, the UK housebuilding sector* conjured up its own Peak District and broke new high ground on no less than eight climbs – and on 31 May a new all-time pinnacle valuation of £38.3 billion was conquered.
These day-time expeditions are included in the 61% of Q2 trading days when the value of the housebuilders’ shares rose. Axiomatically, this means that on 39% of Q2 days, stocks fell (i.e. the 16 never all stand still). In fact the best and worst trading days followed each other in Q2: 14 June with +2.3% and then minus 2.9% on 15 June. Similarly, Mounts April and May rose in value by 7 and 3% respectively but June valleyed 6%.
Turning to the second quarter sign posts, housebuilders’ share prices rose by an average 6.1% in Q2 2017 on an actual basis and 4.3% walking-boot-weighted by market capitalisation (in Q1 these sizes were +13% and +17% respectively).
The Countryside (+41%) and Watkin Jones (+32%) were conspicuously strong; and without these performances, the average rise in Q2 was just 1.4%. Meantime, at the other end, four stocks saw share prices go downhill i.e. Crest Nicholson, Gleeson, Taylor Wimpey and McCarthy & Stone (which was the worst with a 12.9% incline). The remaining 10 stocks were all positive/positive-ish.
In the year to date, share prices rose 20% between 1 January and 30 June and +44% weighted. Once more, the Countryside (+37%) and Watkin Jones (+68%) led from the front. However, three stocks were only marginally positive: Abbey; Inland; and McCarthy & Stone.
Unsurprisingly, the year-on-year movement in share prices is a spectacular view given that 30 June 2016 was just seven days after the Brexit vote – and the housebuilders had fallen off a near 40% cliff. In the past 12 months share prices are up 40% (and 44% weighted) with Redrow (+74%) and Watkin Jones (+85%) truly outstanding. Three other stocks scaled more than 50% too (Cairn Homes, Bellway and Persimmon) with McCarthy & Stone tail-end-Charlie on minus 4%.
The housebuilders left other equity strollers for dead across all measurement paths and while the UK equity market’s three main indices (FTSE 100, 250 and All Share) all wandered onto new ground in early June – their Q2 gains, in sum, were -0.1%, +1.9% and +0.3% respectively. It is the same comparison with REIS (Real Estate Investment & Services) and REIT (Real Estate Investment Trusts) which rose between 2 and 4% in the three months.
In the period, too, there were six companies reporting figures and while three were fit (Berkeley, Countryside and Watkin Jones) – three were slower walkers (Crest, McCarthy & Stone and Telford). In some of the statements, too, there was a more wary footfall and Berkeley was refreshingly pragmatic about the direction of travel in its full year announcement (21 June) when it spoke about “a number of headwinds and a period of prolonged uncertainty”, saying that “Brexit and wider global macro instability impact both confidence and sentiment and will result in constrained investment levels”. In addition there were “other headwinds” at the micro level in planning, mortgage interest and the like. Nonetheless, the Group reiterated its previous guidance of delivering at least £3 billion of pretax profit in the five years beginning 1 May 2016, although it has now sagely suffixed this with the words: “assuming prevailing market conditions persist”.
We noted earlier that, when one is outdoors in inclement climes, an accurate weather forecast is essential. And, for its part, Bloomberg publishes a ‘Brexit Barometer’. Here, the higher the number, the better the climate/the healthier the economy – and vice versa; and, on 3 July, it sank to its lowest level since the aftermath of the June 2016 referendum i.e. to 8.0 from 27.8 a month ago and 51.6 in early September last year. “Policy uncertainty remained elevated in the wake of last month’s election. Manufacturing also slowed more than forecast in June as uncertainty hit demand”; and this means that the UK remains in “windy” territory.
More broadly, Q1 GDP growth in the UK was just 0.2% against 0.7% in Q4 last year and inflation is nudging 3%. The proportion of UK residents’ disposable income which goes to savings also fell to a record low in Q1 i.e. a Savings Ratio of 1.7% (Q4 2016: 3.3%). Similarly, real household disposable income dropped by 1.4% in Q1 (the largest slide for four years); and it completed a hat trick of declines for the first time since 1976-77.
Household spending and retail sales are softening, too, as the domestic economic stalwart that is the UK consumer goes hiking less often. OK, unemployment remains spartan at 4.6% in April; but it is a lagging indicator.
Q2 was a Peak District for housebuilders’ share prices with eight new value summits. It finished the period, however, 6% off the new record from 31 May (£38.3 billion) i.e. June trod a bumpy path. TSR or Total Shareholder Return coordinates for the past 12 months and in the year-to-date are at 43% – Brexit valley and hill top – and 20% respectively; but these won’t be repeated.
* The UK Building Value Housebuilding Sector is composed of: Abbey (ABBY), Barratt Developments (BDEV), Bellway (BWY), Berkeley Group Holdings (BKG), Bovis Homes Group (BVS), Cairn Homes (CRN), Countryside Properties (CSP), Crest Nicholson Holdings (CRST), M J Gleeson (GLE), Inland Homes (INL), McCarthy & Stone (MCS), Persimmon (PSN), Redrow (RDW), Taylor Wimpey (TW), Telford Homes (TEF), Watkin Jones Group (WJG)
Image (c) Adobe Stock
