View from City Road: Don't write off the write-offs
Your support helps us to tell the story
From reproductive rights to climate change to Big Tech, The Independent is on the ground when the story is developing. Whether it's investigating the financials of Elon Musk's pro-Trump PAC or producing our latest documentary, 'The A Word', which shines a light on the American women fighting for reproductive rights, we know how important it is to parse out the facts from the messaging.
At such a critical moment in US history, we need reporters on the ground. Your donation allows us to keep sending journalists to speak to both sides of the story.
The Independent is trusted by Americans across the entire political spectrum. And unlike many other quality news outlets, we choose not to lock Americans out of our reporting and analysis with paywalls. We believe quality journalism should be available to everyone, paid for by those who can afford it.
Your support makes all the difference.BRITAIN'S housebuilders spent yesterday praying that the cautious optimism on the housing market expressed by Nationwide and Halifax was not another false dawn. But, while a housing recovery could ease some of this year's pain, it will be too late to do anything for last year's results, which will be horrendous.
For most of the big companies, meagre trading profits will be eliminated by write- offs totalling at least pounds 600m - or almost a sixth of the sector's market capitalisation. By far the largest part of that will come from Tarmac, where property, housing and restructuring provisions are expected to be at least pounds 250m. But NatWest Securities estimates that Costain will provide pounds 150m and Wimpey at least pounds 120m, while Taylor Woodrow and Amec are likely to come in above pounds 50m.
According to Warburg Securities, in 1991 builders wrote pounds 354m off the value of their housing land alone, bringing the total to pounds 800m in four years - more than enough to buy all of Wimpey and Taylor Woodrow. The focus for the 1992 write-offs has switched from housing, which will account for about a third of the provisions, to long- overdue rationalisation and commercial property - virtually ignored last year, despite overwhelming evidence that the market had collapsed.
Investors, despite ample warnings of the impending bad news, have chosen to focus on lower interest rates and the Government's determination to end the recession. The sector has outperformed the market by almost 30 per cent since Black Wednesday.
That ignores the impact the provisions will have on balance sheets. They will slash net assets, pushing gearing up - further worrying already nervous banks - and depleting reserves.
Costain's retained reserves - pounds 85.3m at group level and pounds 50.7m in the company at the end of 1991 - are likely to be wiped out, even if Peter Costain, the chief executive, manages to clinch the sale of the Australian mines. Just as well that the City is not expecting it to pay a final dividend.
It also ignores the fact that any recovery in housing would have to be dramatic to compensate for the accelerating slump in contracting, which is squeezing margins and, because workloads are slipping, causing negative cash flow. The outperformance has come too soon.
(Photograph omitted)
Join our commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies
Comments