To the list of housebuilders that have more money than they know what to do with can be added Taylor Wimpey. The company ended last year with a small amount of cash in the bank, which is an inefficient use of capital.
Investors, therefore, are promised more news on the company’s “capital allocation approach” with the full-year numbers on February 26.
I leave it to the politicians to decide on the appropriateness of this, given the huge boost the housebuilders have had from various government stimuli, the most successful being Help to Buy.
Taylor Wimpey investors, though, will be aware that they had to stump up £530 million in a rights issue in May 2009 to keep the company afloat, so this is at least a partial payback. The company is giving no further details, but on the assumption that a gearing level of about 25 per cent is appropriate, the sum involved could be in the region of £200 million to £250 million.
It might not be the last. By some measures Taylor Wimpey’s trading update lagged behind recent ones from Persimmon and Barratt Developments, but there is plenty more fuel in the tank. Total completions last year were up by 7 per cent to 11,696. Average prices on private homes rose by 7 per cent to £210,000. The order book rose by 27 per cent to £1.2 billion. Most notably, the company says that the average selling price it expects to get from houses in that order book is up by 20 per cent.
A couple of percentage points of that is industry inflation. The rest is changing mix, building family homes instead of flats and concentrating on the better locations.
A chunk of this rise is the effect of building on cheaper land bought since the financial downturn. Although its margins are not the highest in the industry, they have been rising steadily to 13.1 per cent at the halfway stage and Taylor Wimpey has indicated they will be higher again at the full-year stage.
The company added more than 10,000 plots to its landbank, almost keeping pace with completions. It has about ten years’ supply in that bank, about six years of this with planning permission, at the top of the range in the sector.
The only worry is that, with its peers all chasing land, prices may start to rise again, at the expense of those margins.
The shares, off 2p at 117¾p, have not done much since the summer and sell on 13 times earnings. That cash hand-back could give them another lift.
The news at the weekend that Jupiter Fund Management had received an approach for its private client business threatened to take attention away from yet another good quarter for its mutual funds, the core of the group, which are sold to retail investors.
The amount under management at Jupiter’s mutual funds rose by 6.1 per cent to £24.8 billion in the last quarter. One would have to go back to the end of 2011 to see a quarter of decline. Across the group, total funds under management rose by 5.9 per cent to £31.7 billion. Both increases consisted of about a third from new money invested and two thirds from the rise in the market value of those funds.
In all this, the private client business looks distinctly sub-scale, a mere £2.3 billion of funds. Jupiter, as it had forecast, has reached the point where it has paid off its debt and has sufficient capital to meet regulatory requirements.
The assumption, therefore, is that further cash piling up will be returned to investors, not least the staff with a fifth of the shares. The £50 million or so received for the private client side could be expected to be returned in due course, then.
Only 11 per cent of those mutual funds are held overseas at present. Jupiter’s strong position in the UK retail market, therefore, suggests that much of the future growth, if the company is to double funds under management, as it has said it wants to, will have to come from building up its distribution overseas.
It has not been missed that Maarten Slendebroek, the new chief executive, who succeeds Edward Bonham Carter in March, has a background in distribution and strategy. Time will tell; for now, Jupiter shares, up 8½p at 389p, have advanced by about a fifth since the start of last year, a good one for fund managers generally. They sell on more than 14 times earnings, which looks like a full valuation. Hold.
Guy Buswell, the chief executive of UK Mail, believes shoppers are now sufficiently trusting of online retail that they are happy to leave Christmas purchases to the last minute.
Weekly volume patterns would seem to bear this out. This has to be to the company’s advantage, because its parcels side, which delivers straight to customers’ doors rather than using the Royal Mail network, achieved volume growth of 15 per cent in the last quarter of 2013, after a similarly good performance the previous year.
It is this business-to-consumer service that is providing much of the growth and accounts for more than half the group. It will benefit from £30 million of investment in a new automated hub near Coventry and the introduction of a delivery service that will give customers a one-hour slot for delivery.
The effects of the privatisation of Royal Mail are mainly positive, if hard to discern yet; more efficiency at the Mail will rub off on the company, which uses its “final mile” delivery service for its mail business.
Across the group, revenues were ahead by 6 per cent in the last quarter, respectable enough because it lapped some stiff comparators the previous year.
UK Mail has always been a good income stock, but the shares, off 15½p at 664½p, are up from about 375p in March and change hands on 21 times earnings, while the yield is back to only 3 per cent. This does not suggest much further progress.
Bull markets tend to be good for investors keen to seek out bargains among the small-cap stocks, and this has favoured specialists such as Winterflood Securities. The Numis Smaller Companies Index, used to benchmark small caps, shows that 2013 was the second good year in a row; the index showed a total return of almost 37 per cent, against 21 per cent from the FTSE All Share index.
Gilts
UK government bonds eased after further encouraging signals about the US economy and reassuring company results prompted bulls to wade in again on Wall Street, which scaled new heights. March gilt futures settled 35 ticks lower at 108.37. In the cash market, the yield on ten-year gilts rose by three basis points to 2.87 per cent.
Bet of the day
Spread-betters were selling William Hill’s share price before a trading update tomorrow. Though there may be improvement on its dismal third quarter because of better sporting results, punters are nervous about threats to tighten the rules on lucrative fixed-odds betting machines. ETX Capital quoted 371.94p to 373.26p on William Hill.
Deal of the day
UK Oil & Gas Investments jumped 18.2 per cent to 0.98p after paying £290,000 for two oil licences in Nottinghamshire. Keen to head off the green lobby, David Lenigas, the serial entrepreneur and UKOG chairman, tweeted: “UKOG deal this morning is NOT fracking. It is conventional oil in one of the historic good oil-producing areas of UK.”