The UK housing sector, like certain markets, has been cloaked with a protective shield during the coronavirus crisis. Last July, the government suspended stamp duty on properties worth up to £500,000 and reduced the rate on pricier homes. That support is due to be stripped away at the end of March. Another policy helping shield it from Covid-19’s economic effects has been the longer-running Help to Buy scheme. A pared-back version will come into effect from April, restricted to first-time buyers.
The outlook for the market is “highly uncertain”, Nationwide said last month. Somehow, that feels like an understatement. A rush to beat the stamp duty deadline has effectively pulled forward demand from later in the year, the building society said. Meanwhile, the UK economy is on the brink of a double-dip recession. Unemployment is at 5 per cent, but would be higher without the government’s job-support scheme, due to expire at the end of April.
Housebuilders could be expected to hunker down. Instead, they are venturing out of the keep to restore their dividends. Having promised in November to reinstate its payout, Crest Nicholson delivered full-year results on Tuesday that cited “strong and consistent” conditions since the easing of spring lockdown restrictions.
For builders, the lesson of the last financial crisis was to fortify their balance sheets in preparation for another one. Crest’s management highlighted its £142m of net cash at the end of October. That was ahead of guidance, but was padded by the suspension of the dividend. As with other things during the Covid crisis, the benefits of caution in one period are not really an argument for removing it in the next. But bearing down on discretionary spending has been good for cash retention and bodes well for operating margins: an area marked by analysts as needing improvement.
Crest does have some room for manoeuvre. A land bank of 37,000 plots was a little higher compared with a year earlier, meaning it can batten down the hatches if necessary and focus on cash generation. And promising a dividend two-and-a-half times covered by earnings links the payout to trading conditions.
Nevertheless investors are still holding their breath: Crest’s shares remain 40 per cent down from their pre-crisis level.
Another extension to the furlough scheme, and any added wriggle room around the stamp duty deadline, would bolster housebuilders’ defences. Either way, another outer wall remains strong: investors expect UK interest rates to remain low, even if they do not dip below zero. The builders can hope to muddle through, as long as the rest of us do, too.
Estimating train ticket sales can’t be easy when the government constantly changes travel advice. No surprise then that JPMorgan Cazenove, house broker to ticket booking site Trainline, has given it three shots in as many months, writes Bryce Elder.
UK train passenger numbers have been notably weak of late, says JPMorgan, at 27 per cent of the previous year’s levels in December and just 14 per cent for January so far. Estimating that net ticket sales for Trainline’s year ending February will be a fifth of the 2020 total, the broker erased forecast upgrades it pushed through in November and December — and then some. Deep cuts to revenue expectations mean Trainline is now predicted to remain lossmaking in 2022.
How much of a surprise the recent readings could have been is open to question, since longer distance travel over the Christmas period was cancelled for most of the country by mid-December and leaving home without a “reasonable excuse” has been punishable by fine since early January.
Demand outside lockdown periods provides the better lead indicator, and that points to a slow recovery for the public transport operators. Mass immunisation has yet to offer a shortcut out of the crisis and passengers have already shown a reluctance to trust government advice when it comes to assessing personal risk.
Department for Transport data show that motor vehicle usage had almost returned to normal between July and October. But rail usage peaked in September at just over 40 per cent of the previous year’s levels, despite the government encouraging office workers to return to their desks. London Underground usage follows an identical pattern while demand for provincial bus operators topped out in late summer at approximately 60 per cent of the 2019 level.
Hopes that Senior Railcard holders will be back by spring are beginning to look optimistic, jab or no jab. So what does that mean for Trainline?
Not much, probably. Conclusions expected soon from a government rail review that began in 2018 are unlikely to interfere much with ticket reseller commission rates, given the much bigger problems now facing the industry, and there’s enough cash on hand to hang around for an eventual recovery.
That’s after JPMorgan helped Trainline raise £150m earlier this month by selling a convertible bond with a coupon of just 1 per cent and an exercise price of 667p, a premium of more than 60 per cent to the stock’s current level. Its sellside analysts might have been struggling to add up the numbers, but the corporate finance team looks to have timed this crisis perfectly.