Beyond that, the builders have bounced back from the fragile state they were in post-financial crisis, most of them boasting healthier balance sheets and net cash, notes Ketan Patel, co-manager of the EdenTree UK Equity Growth fund.
To top it off, “they’re all paying extraordinary dividends and they’re cheap,” the income manager added. “If you’re getting 8% yield, which is what Taylor Wimpey will pay you, and the base rate is 50bps, that means you’re getting 16 times more income from a housebuilder.”
Inflation danger
Higher inflation is an obvious hurdle for firms within the sector and has already begun impacting on the cost of materials, most of which are imported from Europe.
However, Patel doesn’t believe that inflation will have the same repercussion for the labour market because many of the sector’s specialist jobs are being filled by British workers.
“We have a shortage of brick layers in this country, but most of the brick layers don’t come from Europe, they come from the UK. In Europe they don’t build using bricks, they use concrete and steel.”
Pick your poison
Companies in cyclical domestic sectors carry a certain kind of risk, especially now in the pre-Brexit climate. That’s why Patel says it is important to be savvy about where you invest in the sector.
“You have to pick your housebuilders correctly,” he says. “Not all housebuilders are equal.”
Currently, EdenTree Investment Management has money invested in Taylor Wimpey, Berkley Group, Bellway and Brownfield generation specialist Inland Homes.
“For us, we think those are the quality players. Taylor Wimpey is slightly lower end, national player. Berkley is London-based high end. Anthony Pidgley, the CEO, has been there for decades and knows how to run the place. Bellway is like Taylor Wimpey, slightly more expensive but also national.”
Brexit aside, the sector will remain strategically important, says Clark, because of the “structural need for housing supply”.
“There is only one mechanism to bring housing to market and that’s the housebuilders,” he adds.
