The number of housing completions in the UK remains significantly lower than perceived demand, because much of this demand is not being translated into actual sales. Even so, conditions for housebuilders remain robust. They could be better of course, especially if affordable mortgages were more widely available, but the essential building blocks remain in place. Demand for new houses remains high, while as yet there is little upward pressure on land prices. This means that building on cheap land bought in the wake of the financial crash has boosted operating margins back into double figures, albeit still well below pre-crash levels.
Inevitably, the impetus from this will wane as the builders work through legacy land bought before the crash, but profits should continue to rise thanks to a steady increase in the number of sites that builders have open to sell houses. However, another margin driver could start to fade as builders complete the switch away from lower-margin apartments to building more profitable family homes.
Around 80 per cent of all new houses are bought by people who already own a house and are able to put down a significant deposit. But the percentage of first-time buyers could be set to rise as a result of a number of initiatives such as FirstBuy, NewBuy and Funding for Lending, designed to help them onto the first rung of the housing ladder. All this suggests that housebuilders are set fair to deliver further growth in the coming year. The only real change from a year ago is that shares in all the major housebuilders are no longer trading at a deep discount to net asset value. But this is understandable because in adapting to a lower volume market, builders have used the improved margin performance and cash flow generation to strengthen balance sheets by reducing debt levels. Moreover, land banks have been expanded as builders take advantage of the low cost of land.
| COMPANY NAME | LATEST PRICE (P) | MARKET VALUE (£M) | PE RATIO | DIVIDEND YIELD (%) | PERCENTAGE CHANGE IN 2012 | LAST IC VIEW |
| BARRATT DEVELOPMENTS | 211 | 2,062 | 26 | nil | 123.5 | Buy, 159p 12 Sep 2012 |
| BELLWAY | 1,044 | 1,269 | 15.9 | 1.9 | 45.1 | Hold, 998p 16 Oct 2012 |
| BERKELEY GROUP | 1,778 | 2,334 | 12.2 | 0.8 | 37.7 | Buy, 1,691p 13 Dec 2012 |
| BOVIS HOMES | 584 | 781 | 26.5 | 1.1 | 30.9 | Buy, 548p 6 Dec 2012 |
| PERSIMMON | 821 | 2,485 | 17.5 | 0.7 | 70.2 | Buy, 688p 21 Aug 2012 |
| REDROW | 166 | 614 | 15.4 | nil | 46.4 | Hold, 153p 19 Oct 12 |
| TAYLOR WIMPEY | 68 | 2,198 | 21.3 | 0.8 | 75.5 | Hold, 45p 1 Aug 12 |
