Housebuilder shares fall as competition watchdog opens investigation; UK retail sales slump eases – business live

Elsewhere in the City, shares in UK-based logistics group Wincanton have jumped 11% as a bidding war looms.

Wincanton agreed last month to be bought by French multinational CEVA Logistics in a deal worth £567m, or 450p per share.

This morning, CEVA hiked its offer to 480p, valuing Wincanton at £604m.

But Wincanton has revealed that it has also “received an approach from a potential competing bidder”, and is providing access to due diligence information as required under the takeover code.

Wincanton, which is still recommending the CEVA bid, says:

Although the potential competing bidder has indicated that it is considering making a proposal, as of the date of this announcement, it has not provided the Board of Wincanton with any formal proposal relating to a possible offer, including as to terms or price. If any such proposal is provided by the potential competing bidder, the Board of Wincanton will carefully consider its terms, in conjunction with its advisers.

Wincanton don’t name the mystery second bidder.

But Sky News’ Mark Kleinman can be relied on at such times.

He’s learned that it is GXO, the American global contract logistics company which acquired retail logistics company Clipper in 2022.

Shares in Wincanton have gained 53p to 501p, above CEVA’s new offer, implying that traders anticipate further bidding action.

Wincanton employ over 20,000 people, with 7,400 vehicles operating from more than 160 sites across the country. It ships products for food and consumer goods firms; retail and manufacturing; eCommerce; the public sector; major infrastructure; building materials; fuel; and defence.

The CMA’s investigation into information sharing (see opening post) is more painful for housebuilding companies than its conclusion that the housing market needs reform (see 7.30am).

So says Oli Creasey, property analyst at Quilter Cheviot, who explains:

Up first is the conclusion from the CMA’s report that places the blame for slow house-building (the country habitually misses its target for new home deliveries) largely on the planning system that it describes as protracted and unpredictable, as well as under-resourced. That may not be a surprise for anyone who has tried to navigate the planning permission system in recent times, but is something of a vindication for housebuilding firms.

The original study was also looking into the industry’s use of landbanks, with early suggestions being whether builders were stockpiling land and artificially slowing delivery. The conclusion instead is that land-banking is a consequence of the slow planning process – i.e. it might make sense to carry multiple years’ worth of land on balance sheet if planning takes years to complete. Housebuilders will be relieved that their strategy has avoided this blame.

However, the other headline – that housebuilders may have shared information regarding pricing, incentives and sales rates – is more troubling. While it is not named as a primary factor in the under-delivery of new homes, it is still possible that firms are found to have broken the law, and fines may be levied as a result. It is difficult to judge the probability of this outcome.

While the property market does not have a reputation for arch-secrecy, it’s also unlikely that a series of “smoking gun” emails will be found in senior executives’ email accounts. How strong a conclusion the investigation comes to, and what the impact on the housebuilding firms will be, remains to be seen.

UK retail sales slump eases in February

Back in the UK, household costs have jumped by almost a quarter since December 2019, new data from the Office for National Statistics shows.

The ONS has investigated the impact of higher mortgage interest rates on household costs. It found that average UK household costs, as measured by its Household Costs Indices (HCI), increased by 5.0% in the year to December 2023.

That followed a 12.4% increase over the same period in 2022.

On a cumulative basis, household costs are up 24.7% since December 2019, the ONS reports.

The data also shows that owner occupiers’ housing costs have overtaken food and energy as a leading driver of inflation.

The ONS says:

Households with the largest mortgages were most exposed to this increase in owner-occupiers’ housing costs, which most often include working-age households with children and above-average disposable income.

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A new report into Britain’s mental health crisis has found that young people are more likely to be out of work because of ill health than people in their early 40s.

The Resolution Foundation is warning that this will have large economic consequences, as that pattern of who is out of the labour market due to ill health changes.

Here’s the key points from their new report:

• Over one-in-three (34 per cent) of young people aged 18-24 reported symptoms that indicated they were experiencing a common mental health disorder (CMD) like depression, anxiety or bipolar disorder – a big increase since 2000 when less one-in-four (24 per cent) reported these problems. As a result, more than half a million 18-24-year-olds were prescribed anti-depressants in 2021-22.

• Young people with mental health problems are more likely to be out of work than their healthy peers. Between 2018 and 2022, one-in-five (21 per cent) 18-24-year-olds with mental health problems were workless, compared to 13 per cent of those without mental health problems.

• Universities have become hotbeds for mental health problems: the share of young full-time students with a CMD has increased at a far faster rate than that of working or out-of-work young people (up 37 per cent, compared to 15 per cent and 23 per cent respectively).

• Non-graduates with mental health problems are particularly disadvantaged in the labour market. One-in-three young non-graduates with a CMD were workless, compared to 19 per cent of non-graduates without mental health problems, and 17 per cent of graduates with a CMD.

• A shocking four-in-five (79 per cent) 18-24-year-olds who are workless due to ill health only have qualifications at GCSE-level or below, compared to a one-third (34 per cent) of all people in that age group.

• Mental health problems are blighting young people’s education. An estimated one-in-eight (12 per cent) of 11-16-year-olds with poor mental health problems missed more than 15 days of school in the autumn term of 2023 compared to just one-in-fifty (2 per cent) of their healthier classmates.

The regulatory probe into possible anti-competitive information sharing is “the last thing” Britain’s housebuilding sector needs, says Russ Mould, investment director at AJ Bell:

“While they may all profess to want to help with the national mission of building more homes – and undoubtedly, they do help – there is also an advantage to housebuilders if the balance between supply and demand remains tight.

This helps sustain higher house prices and supports their margins. In this context, the competition authorities are taking a closer look to see if some of the big housebuilders – including Barratt, Berkeley, Persimmon, Redrow, Taylor Wimpey and Vistry – have been sharing commercially-sensitive information and using that knowledge to make decisions on build-out of sites and the price of new homes.

The CMA notes this is not a significant factor in the persistent under-delivery of homes, nonetheless it is sufficiently concerned that competition in the market has been undermined to take a closer look.

A regulatory probe is the last thing the sector needs. It is just finding its feet again after a tricky period for the property market as demand dried up thanks to higher borrowing costs.

Housebuilders may also argue the proposed introduction of more red tape, including the establishment of a New Homes Ombudsman, will clip the sector’s wings. However, previous issues around build quality and treatment of customers means they are reaping what they have sown.”

Where the CMA will be preaching to the converted when it comes to the industry is identifying problems in under-resourced local planning departments – a familiar grumble in the housebuilding space.”

The housebuilders are helping to drag the London stock market into the red this morning.

The blue-chip FTSE 100 index is down 27 points, or 0.35%, at 7679.

The top faller is Ocado, the grocery technology company, down 5.4% after Peel Hunt cut their price target on its stock, followed by Bunzl (4.8%), the distributor, which warned its operating margins will fall this year.

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The CMA has the power to impose penalty fines of up to 10% of applicable turnover, if it concludes that a firm has broken competition law, points out Anthony Codling, analyst at RBC Europe Limited.

Codling suggests that. two or more housebuilders who operate in the same local market could potentially share information to ensure that they don’t both build all their 2 and 3 bed homes at the same time, for example.

But he argues that housebuilders are “price takers” rather than price makers – as the market for existing homes is so much larger than the new build market.

Codling told clients this morning:

The number of sites where more than one housebuilder operates in exactly the same local market will be in the minority in our view, and we do not believe that housebuilders can materially impact house prices in ways against the public interest.

In our view they have more power to cut rather than increase house prices. There may be a few cases where information about house mix phases have been shared in order to increase the choice of homes built in any one period, but site plans are documents of public record.

However, no system is perfect and there may be a small number of bad actors who have operated outside of their employer’s own policies and procedures and such instances if found may lead to a penalty fine.

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, explains why shares in housebuilders are in the red this morning (see 8.03am):

“Housebuilder stocks have fallen as the CMA launches a probe into the sector. Concerns include poor customer outcomes from the quality of new homes, with faults on the rise over the last ten years.

A major trigger for the investigation is accusations that some major housebuilders are sharing confidential and commercially sensitive information relating to sales prices and sales rates.

Other criticism is levelled at the UK’s overly clunky planning processes, which are contributing to the under-supply of new homes. Seeing rules streamlined could help some of the big listed names shift more houses, but it could also increase competition.

The accusations of poor build quality and anti-competitive practice will be of more immediate importance, as findings against either strike could lead to margin degradation in the short term, but this is far from guaranteed.

The CMA’s new competition probe comes less than three weeks after the UK’s biggest housebuilder, Barratt, struck a deal to buy its smaller rival Redrow for more than £2.5bn.

The two companies reached an agreement over an all-share offer from Barratt, which will cement its position as the country’s largest housebuilder.

Housebuilders’ shares fall

You can read the CMA’s report into the UK housebuilding sector, here.

In it, the CMA points out that the profitability of the 11 largest housebuilders has been generally higher than we would expect in a well-functioning market, apart from during and after the financial crisis.

Profits in the period from 2013 to 2019 were particularly high, it says sternly.

However, the watchdog does not believe it should intervene, for three reasons:

• The housing market is highly cyclical and impacted by external factors, including the wider economic climate.

• Profitability during the 2010s is likely to have been boosted by supportive economic circumstances and temporary factors that are no longer in evidence, in particular a prolonged period of low interest rates and the Help to Buy schemes’ support for first-time buyers.

• There was significant variation in the performance of individual large housebuilders in our sample.

The CMA has made several recommendations for how to improve the UK housing sector.

They are:

• requiring councils to adopt amenities on all new housing estates.

• introducing enhanced consumer protections for homeowners on existing privately managed estates – including making it easier for homeowners to switch to a more competitive management company.

• establishing a New Homes Ombudsman as soon as possible and setting a single mandatory consumer code so homeowners can better pursue homebuilders over any quality issues they face.

But, the CMA adds, policymakes could make “more fundamental interventions”, which would have a significant impact on the quality and affordability of new homes being built.

It adds:

These interventions would include a significant increase in non-speculative house building that has previously been led by local councils and housing associations.

CMA calls for substantial intervention in the housebuilding market

CMA highlights “fundamental concerns” over housebuilding market

Introduction: CMA launches competition probe into UK housebuilders