好色先生TV

Nine years on from the credit crunch that caused the biggest economic collapse in 60 years, 好色先生TV鈥檚 Top 150 tables of contractors and housebuilders paint a picture of an industry still in recovery.

And 鈥� as is appropriate for tables produced during the European football championships in France 鈥� the data, based on the published results of the biggest firms in the sector, shows a game of two distinct halves. While housebuilders have been growing stronger, making big profits on a healthy market since 2013, contractors seem stuck on the injury list.

Now, with the wider economic climate already turning distinctly gloomy, both sides of the industry are facing the fallout from Brexit. In the first 10 days after the vote, housebuilder share prices dropped by 30-40%, with contractor values falling by 15-20%. Residential and commercial property funds suspended trading to stem the volume of sellers attempting to abandon them.

I鈥檝e never known so many people say they just don鈥檛 know what鈥檚 going to happen

Tony Williams, 好色先生TV Value

In truth, very few in the industry have any sense of how serious the real-world fallout of this political, economic and market uncertainty will be.

鈥淚鈥檝e never known so many people say they just don鈥檛 know what鈥檚 going to happen,鈥� says 好色先生TV Value chief executive Tony Williams. Vince Corrigan, group director at specialist contractor Keltbray, sums up the air of wary uncertainty. 鈥淚t鈥檚 like we鈥檝e had an earthquake 鈥� we just don鈥檛 know whether there鈥檚 going to be a tsunami to follow. We鈥檝e got to wait and see,鈥� he says.

So, with the future uncertain, what do the tables tell us about the shape the industry is in and its ability to withstand any economic shocks further down the road?

Much of the talk in the national press around the economic fallout from Brexit has focused on speculation about a collapse in the housing market, with the Treasury suggesting that prices could be hit by as much as 18% in the two years following the vote to leave the EU. Before the vote, housebuilders were already dealing with a cooling off in the higher end of the market due to stamp duty changes and uncertainty over the referendum.

Despite the terrifying drops in housebuilders鈥� share prices since the vote, however, the data suggests this part of the industry may be resilient to the Brexit effect. The results show the profit margins of the top 30 housebuilders have a healthy average of 14.4%. Turnover grew by 14% in one year, and rose by 40% in the past two years. In addition to turnover and profitability, housebuilders have also made great strides in reducing their debt burden and improving return on capital.

Kevin Cammack, analyst at Cenkos, says: 鈥淭here isn鈥檛 a major housebuilder out there that鈥檚 not making more margin now than they were in 2007-08 when the last recession hit. They鈥檙e operating well above their margin trend across the cycle so they can afford some pressure there. There will be a slowing down, but the housebuilders鈥� ability to combat it has probably never been greater.鈥�

Cammack isn鈥檛 alone in this analysis. 鈥淧rofits may be hammered in the short term but, compared with 2008, the industry has put its house in order 鈥� it鈥檚 better managed with no debt. If anything, it will give many an opportunity to pick up land more cheaply,鈥� says 好色先生TV Value鈥檚 Williams.

Contractors, however, are in a different position. Far from convalescing in the past year, their condition has actually deteriorated, with the average profit margin of the top 50 dropping from 1.16% last year to a dismal 1.05% this. More than one-fifth of contractors in the table reported a loss and, despite a buoyant market and sharply rising construction costs, contractor turnover was broadly static, actually dropping slightly.

Most of the contractors are not ready for another downturn. They haven鈥檛 built up their reserves yet

Steve Beechey, Wates

In addition, in broad terms, the bigger the contractor, the worse they performed. The contractors ranked 50-100 reported an average margin of a much more steady 3.4%, in line with long-term industry rates, and only six were loss making. Cenkos鈥檚 Cammack says: 鈥淐ontractors have got nowhere near as far along the recovery path as you鈥檇 expect at this stage in the cycle. Generally, they will look to rebuild their order books first before rebuilding margins by being truly selective about work. But most have only sort of got through the first stage of that and aren鈥檛 yet getting full margin. Now they鈥檙e facing the prospect where order books are starting to dry up again.鈥�

More serious, perhaps, than the state of their order books is the condition of contractors鈥� balance sheets. Many fell into debt during the downturn and have not yet found a way out of it. Mike Peasland, a former Balfour Beatty UK managing director and now a John Sisk non-executive director, says: 鈥淭here鈥檚 still a lot of pain in the sector and a lot are trying to repair their balance sheets. Contractors generally are in a much worse financial position going in to this compared with 2008.鈥�

Steve Beechey, group strategy director at Wates, who says his firm鈥檚 balance sheet remains strong, agrees there is a wider 鈥渂ig problem鈥�. He adds: 鈥淢ost of the contractors are not ready for another downturn. They haven鈥檛 built up their reserves yet, and it leaves the sector very exposed, and some contractors very, very exposed.鈥�

鈥淟onger term the prospects are good,鈥� he says, 鈥渂ut that could take a number of years and the fear is some companies won鈥檛 be here by then.鈥�