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From an all-time high of 5,470p in February 2020, Berkeley Group’s share price plummeted to 3,131p before the end of March, as the pandemic took a stranglehold of the UK economy. Since then the housebuilder’s stock has recovered steadily, reaching as high as 4,889p in December, before coming back down to 4,286p in March.
Government Support for Homebuilders
Property companies received a great deal of support from Rishi Sunak’s budget announcement that could see them to the end of the pandemic.
The Chancellor pledged to “stand behind home buyers”, extending the stamp duty holiday to June. The point at which stamp duty will be paid will remain at £250,000, double its standard level, until the end of September. The budget also included assurance that the government will guarantee mortgages up to 95% of a home’s value.
The policies, in particular the stamp duty waiver, proved to be a success before the pandemic as house prices hit record numbers.
Mark Peck, director at Cheffins, commented on the impact of Sunak’s announcements on the property industry.
“Stamp duty has long been the Treasury’s golden goose and has filled government coffers for centuries, and whilst the lack of stamp duty paid over the past year will have been felt by the government in terms of income, this extension will ensure that the property industry continues its current bull run over the next three months,” Peck said.
The continued support by the government, in addition to the UK economy emerging from lockdown, could make Berkley Group an attractive proposition over the coming months.
Risks
Berkley Group shares took a tumble on Friday as the company’s forecasted profit was downgraded.
The developer predicts it will record a profit of about £504m for the year ending in April, around the same level it generated in 2020, but £20m lower than initially expected.
Berkeley Group also confirmed its reservations are set to fall by 20% during the current financial year as the housebuilder delayed opening sites due to lockdowns.
This is in contrast to its rivals that have wasted no time in building sites to capitalise on the sector’s bright outlook. Russ Mould, investment director at AJ Bell, suggested the stock was less well positioned than its competitors.
“Of all the housebuilders Berkeley seems the least bullish. A flat performance in its financial year to February 2021 is testament to how impressively the business recovered from the pandemic in the second half.
“But while Berkeley still has strong levels of enquiry it is phasing developments to coincide with a reopening of the economy. This may look very clever in time if it sees Berkeley deliver a smoother flow of profit and cash flow than its peers, many of which seem to be operating at 100 miles an hour.
While Berkeley is well poised to capitalise from favourable policies and perpetual demand for housing, the company does risk being outperformed by its competitors over the coming months.
The FTSE 100 dipped 0.35% to 6,713.40 on Friday morning. “Strength among banking and energy stocks wasn’t enough to offset weakness in miners and housebuilders, the latter falling after a gloomy update from Berkeley Group,” says Russ Mould, investment director at AJ Bell.
“It’s not quite the end to the week that investors had hoped, with markets across Europe failing to sustain yesterday’s positive momentum,” “However, markets are still ahead on the week and the recent sell-off in tech stocks looks like it has stabilised which is important for investor sentiment,” Mould adds.
FTSE 100 Top Movers
Burberry (6.07%) headed up the FTSE 100 on Friday, followed by Barclays (2.51%) and M&G (2.10%).
Berkley (-5.91%), Fresnillo (-3.52%) and WPP Group (-2.71%) were the index’s biggest fallers prior to Friday lunchtime.
Burberry
Burberry has said it expects its full-year profits to exceed expectations following a resurgence in its sales over recent months. In an impromptu trading update on Friday the luxury brand confirmed its same-store retail sales are expected to be between 28% and 32% higher compared to the year prior. Burberry also confirmed it anticipates its full-year revenue to fall between 10% and 11%. Analysts forecasted a 13% decline at constant exchange rates.
Shares in the FTSE 100 company were up over 8 per cent in early London trading.
Berkley
Russ Mould commented on Berkley’s resilient performance during the pandemic.
“Of all the housebuilders Berkeley seems the least bullish. A flat performance in its financial year to February 2021 is testament to how impressively the business recovered from the pandemic in the second half.”
“But while Berkeley still has strong levels of enquiry it is phasing developments to coincide with a reopening of the economy. This may look very clever in time if it sees Berkeley deliver a smoother flow of profit and cash flow than its peers, many of which seem to be operating at 100 miles an hour.”
Burberry has said it expects its full-year profits to exceed expectations following a resurgence in its sales over recent months.
In an impromptu trading update on Friday the luxury brand confirmed its same-store retail sales are expected to be between 28% and 32% higher compared to the year prior.
Burberry also confirmed it anticipates its full-year revenue to fall between 10% and 11%. Analysts forecasted a 13% decline at constant exchange rates. The FTSE 100 company’s operating margin is expected to come in around 16%, higher than the margin implied by forecasts.
Shares in the FTSE 100 company were up over 8 per cent in early London trading.
Russ Mould, investment director at AJ Bell, suggested the business will pick up further when international travel resumes.
“Burberry has been strutting down the catwalk with quite a pose since the latter part of 2020 as its earnings recovery takes shape. Its latest update shows that trading is better than expected which is impressive given that this is likely to be just the first stage in a multi-phase bounce back,” Mould said.
“A lot of its business has historically come from Asian tourists taking trips across Europe. They like to spend big and its products are highly desirable. The restrictions on international travel are only in the nascent stages of being lifted and the return of tourist-related sales may not pick up in earnest until 2022.”
Mould also feels that Burberry could be benefit from a Roaring Twenties like economic boom.
“Therefore, current sales are likely to be driven by domestic customers. In January it flagged good full-price sales in places like the Americas, mainland China and Korea.”
“As more regions start to come out of lockdown restrictions, there is a sense that we could see a huge spending spree as a lot of people fortunate to have been working throughout the pandemic may have amassed considerable spare cash.”
“The idea that we could see the Roaring Twenties is very real and luxury goods companies such as Burberry could be major beneficiaries.”
Property prices in rural areas surged during to pandemic
The average price of a rural property has risen by 20.8% over the last five years, 3.3% higher than in urban areas, according to the 2021 Rural Property Report by Coulters Property.
There was a surge of 6.22% in the price of rural property between 2019 and 2020, as demand increased for homes in rural areas during the pandemic.
“Over the last year, we’ve seen an increasing amount of people relocating from cities to the countryside, due to factors such as more green space, fresher air and a slower pace of life,” the report said.
Rank
Local Authority
2015
2020
Five-year increase
1
Harborough
£245,582
£328,172
33.6%
2
East Northamptonshire
£188,598
£250,497
32.8%
3
Rutland
£254,328
£335,024
31.7%
4
Hinckley and Bosworth
£181,410
£238,220
31.3%
5
High Peak
£168,050
£218,996
30.3%
5
Mendip
£219,217
£285,616
30.3%
7
Swale
£202,145
£263,271
30.2%
7
Staffordshire Moorlands
£156,219
£203,403
30.2%
7
Derbyshire
£235,059
£305,997
30.2%
10
Forest of Dean
£200,227
£259,473
29.6%
The rural areas with the biggest price increases
Property prices in Harborough, Leicestershire, have increased by 33.6% over the last five years, with the average house price reaching £328,172 in 2020.
The most expensive rural area, according to the report, is Waverley, Surrey, where the average house price is £473,536.
While County Durham is the most affordable countryside location to purchase a property, with an average house price of £109,980.
Predominantly urban areas have the highest average property prices (£302,710) in the country. However, the top ten most expensive areas to buy a house are all in London, where house prices are notoriously high due to their high demand.
This January saw house prices fall for the first time in six months.
The house price index from Nationwide reported a 0.3% fall in the average UK property price to £229,748.
Rishi Sunak announced today that UK GDP fell by 2.9%, putting the figure down to the economic impact of the coronavirus pandemic.
“Today’s figures highlight the impact the pandemic continued to have on our economy at the start of the year as we tackled the new variant of the virus – and I know this is a cause of concern for many,” the Chancellor said.
The Office for National Statistics (ONS) said on Friday that the dip on GDP came about as a result of declines in retail sales and education as the UK aimed to halt the spread of Covid-19. The UK economy is 9% smaller than it was prior to pandemic which began over a year ago, the ONS added.
Manufacturing fell for the first time since April due to a fall in exports as the UK adapted to its new arrangements with the EU, according to the ONS.
Exports to the bloc dropped by 41% in January, as imports from the EU fell by 28.8%.
Commenting on UK GDP falling by 2.9%, Ian Warwick, managing partner at Deepbridge Capital, said:
“The numbers reflect the UK’s difficult start to the year, amidst ongoing Brexit and Covid uncertainty. However, there are now clear glimmers of light at the end of what has been a long journey. The UK has already administered more than 23 million coronavirus vaccinations and the number of daily infections is falling.”
Rupert Thompson, chief investment officer at Kingswood, drew attention to other factors at play:
“The lockdown took a smaller toll on the UK economy in January than expected with GDP falling 2.9% over the month rather than 4.9% as had been expected.”
Thompson also reflected on the longer-term impact of the UK leaving the European Union.
“However, more notable was the sharp drop in EU Trade with exports and imports down 41% and 29% respectively. Only time will tell how much of this was down to the lockdown, how much was down to Brexit and more importantly, how much of the latter just reflects teething problems and will be soon reversed.”
Bodycote (LON:BOY) confirmed its revenue fell by 16.9% on Friday to £598m, as well as its organic revenues dropping by 20% during 2020.
The Macclesfield-based company’s operating profit decreased by by 44% to £75.2m, while its EBITDA margin fell more narrowly, to 26.4%, from 29.2% the year before.
The FTSE 250 company announced £36m of cash restructuring within its results, and said it would lead to £30m of yearly savings by 2022.
Bodycote said its free cash flow conversion, at 141% for 2020, was “excellent”, up from 91% the year before. Its closing debt was reported at £23m as the company paid £96m of the consideration for Ellison.
The company proposed a final dividend of 13.4p for 2020, putting the total payout for the year at 19.4p, up slightly from 19.3p per share the year prior.
Stephen Harris, chief executive at Bodycote, spoke about the impact of the pandemic on the business among other things:
“This year has been hugely challenging for our people. Not only have they been confronted with the impact on their personal lives from the COVID-19 pandemic and all its consequences, but they have also had to deal with significant changes in the working environment and organisation. I am immensely proud of the fortitude and resilience shown by our employees as they continued to deliver first-class service to our customers under the most trying of conditions.”
“As the COVID-19 pandemic hit, the need to safeguard the wellbeing of our employees drove an immediate, large scale mobilisation of resources across the Group. I am very pleased to see how effective the measures we have taken have been and I want to acknowledge the remarkable performance of the global and many local management teams involved in this unprecedented effort.”
“As part of our strategy, we have focused in recent years on repositioning the Group to take advantage of a number of megatrends in our end markets. Our expansion in Eastern Europe is targeted at supporting the Electric Vehicle supply chains that are establishing themselves in this Region. The change in focus of our civil aerospace business addresses the structural shift within the industry towards point-to-point air travel and narrow body aircraft. Additionally, the repurposing of some of our North American facilities aligns our business with the diminishing importance of fossil fuels. The restructuring programme we have been executing in 2020 represents an acceleration of our strategy and is exactly aligned with these secular trends.”
Hammerson (LON:HMSO) confirmed an annual loss that more than doubled as the value of its properties fell and its rental income dropped as a result of the coronavirus pandemic.
The retail centre owner announced an IFRS loss of £1.7bn during 2020, compared to a £781m loss the year before.
Hammerson’s net rental income plunged by 49% to £157.6m due to lockdowns, in addition to tenant restructuring and higher provisions for bad debts and tenant incentives. The value of the FTSE 250 company’s portfolio, including London’s Brent Cross shopping centre and Birmingham’s Bullring, fell to £6.34bn from £8.3bn.
Hammerson’s commercial properties were already under pressure, as customers are increasingly opting to shop online. The pandemic has exacerbated this trend. The company has been badly affected by restrictions due to coronavirus as non-essential shops remained closed for a large chunk of the year.
Hammerson proposed a 0.2p final dividend with an enhanced payout if taken as scrip. The full-year dividend was 0.4p, or 4p as scrip, compared with 5.1p a year earlier.
Rita-Rose Gagné, Chief Executive of Hammerson, commented on the results and the year ahead:
“As our results show, Hammerson was hit hard. The retail sector, already in the grip of major structural change, has been significantly impacted by the restrictions imposed to tackle the pandemic, and we’ve also seen an increasing number of retail failures. Combined, this has resulted in the largest fall in net rental income and UK asset values in the Group’s history.”
“However, if this pandemic has highlighted anything, it is how much we all crave human contact as inherently social beings. As a business, Hammerson provides the places and social infrastructure where people want and need to be, and I am confident it will have a vital role in shaping neighbourhoods and communities in the future.”
“Our immediate focus in 2021 is leading Hammerson through Covid-19 to safety. This means further disposals to strengthen the balance sheet, managing refinancing, and sharpening our operations to maximise income. We will then focus on realising the quality of our destinations to drive the business forward. We are currently working on a thorough strategic and organisational review that will map out a route to future growth to transform the business in the context of what will remain a tough economic and structural backdrop.”
Vaccine withdrawn by Denmark, Norway and Iceland as a ‘precaution’
Denmark, Norway and Iceland have halted the Oxford/AstraZeneca vaccine after a Danish women died with blood clots after receiving a jab.
The EU medicines agency stated that there is no indication the jab had caused the blood clots.
AstraZeneca confirmed in a statement that the drug had been studied extensively.
“Patient Safety is the highest priority for AstraZeneca. Regulators have clear and stringent efficacy and safety standards for the approval of any new medicine, and that includes Covid-19 Vaccine AstraZeneca.” Peer-reviewed data confirmed it had been “generally well tolerated”, the statement added.
The news emerging comes as a set back for the continent’s vaccination push that had recently gained momentum.
AstraZeneca’s share price fell by 2.52% on Thursday to 7,011p as the news broke.
