The impact of the public sector cuts on the private sector has been thrown dramatically into focus after housing contractor Connaught saw its share price plunge by more than half.
In a trading update put out just 25 minutes before the stock market closed on Friday, the company said that it had identified 31 contracts in its social housing division where clients were deferring spending. That would reduce revenue by £80m this year and a possible £120m next year if the deferral continued.
Connaught said that the medium-term outlook ‘remains strong’ thanks to a cost reduction programme and a move by customers to longer-term contracts but the impact on its share price was dramatic. The company lost a third of its value on Friday, with shares falling from 320p to 215p and they lost another 80p in early trading this morning to stand at 134.4p.
That’s quite something coming only a few days after the emergency Budget and apparently with public sector cuts only at an early stage. Rival firm Mears issued a statement this morning saying that it was ‘not experiencing any downward pressure on spend in its social housing business’.
However, the potential impact of the cuts was also shown in a half-year trading statement by leading housebuilder Taylor Wimpey today. Housebuilders are not nearly as dependent on public spending as repairs contractors but the company says it remains ‘concerned regarding future spending reviews that could impact on housing initiatives, particularly the level of social housing grant’.
Housebuilders have relied on public funding not just for housing association development but also for Kickstart and Homebuy Direct schemes for homes for sale but much of that has been frozen as a result of the £780m housing ‘black hole’ claimed by the government. Housing minister Grant Shapps said last week that the Treasury would cover £140m of that and an announcement on the rest was due in the next two weeks while Inside Housing revealed that the 50 biggest developing housing associations would build 6,000 fewer homes this year.
The cuts may be in the public sector but the pain is being privatised too.
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Anonymous | 28/06/2010 12:03 pm
"The cuts may be in the public sector but the pain is being privatised too" - ???
Thats a very pejorative way of commenting on this point. I agree that the market agrees that social builds will fall dramatically and have fled such housebuilders and repair organisations dependent on public sector contracts.
Yet it is obvious that such housebuilders will concentrate a higher propertion of their efforts on homes for sale and so the share price will undoutedly rise again shortly. Look at Bank share prices as an example and Barclays in particular and this becomes apparent.
Further to this (from left field perhaps?) I suspect many PSLs will bandy together in consortia to take advantage of the HB / LHA increase they will get from the latest proposals. I can envisage some of these being enormous ans even going public.
Moreover, its only a short step away seeing huge PSL consortia having more stock in management than the large HAs. I do wish I had a bicketload of money investing in a large PSL consortia gettting 70% more in guaranteed rents from the state and working in a virtual unregulated world comapred with HAs.
That is the nightmare scenario for the HB bill and the public purse and with it being forecast last week that PSLs will have more stock than social landlords in a few years time....and this period will be shortened with PSLs flocking into the buy-to-let market to take advantage of these naive proposals that will see HB rocket.
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| 28/06/2010 11:19 pm
I'm just completely gutted that the rogues gallery of private social housing repairs contractors who made up the majority of names on the OFT bid riggers list after shamelessly ripping off the taxpayer for £37Bn of so-called "Decent Homes" money (this being twice the budgeted amount and with RTB leaseholders have to pay extra for the privilege) are now loosing money. I'll be loosing so much sleep over this one.
My, how the wheels of justice turn quickly these days...
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