FTSE calm after US and Asian gains, Berkeley delivers robust results as Persimmon strikes leasehold deal

“The markets seem to be in consolidation mode on Wednesday after their see-saw start to the week,” says AJ Bell Investment Director Russ Mould.

“US and Asian stocks built on their previous day’s gains overnight and the FTSE 100 was broadly unchanged at kick-off this morning,

“While recent market sentiment has been dictated by the US Federal Reserve, their counterparts in the Bank of England will take centre stage later today when they deliver their monthly address.

“Investors might expect some guidance on the future trajectory of UK interest rates although consumer prices are merely bubbling on this side of the Atlantic when compared with the boiling point they have already reached in the US.

“Much will depend on just how transitory the current elevated levels of inflation turn out to be.”

Housebuilders

“High end housebuilder Berkeley has a well-earned reputation as one of the best run names in its industry and today’s results do nothing to undermine that status.

“The company gives very clear forward guidance on the kind of returns shareholders can expect and has delivered exceptional returns as it acquired land cheaply coming out of the financial crisis.

“Berkeley also has rare expertise in developing complex brownfield sites into places people would actually want to live.

“Returns have moderated somewhat, particularly as the market cooled in its core markets in London and the South East but a notable feature of the commentary accompanying today’s numbers from Berkeley was a very upbeat assessment of the market dynamics in the capital.

“Berkeley notes a continuing undersupply of homes in London and the Home Counties and dismisses fears that the pandemic will lead to a permanent structural shift which will harm global cities like London.

“One of Berkeley’s peers which is attempting to catch up in terms of quality is Persimmon which has taken a big step forward by reaching an agreement with the competition authorities over the sale of leasehold properties.

“Purchasers of these properties have in some cases been hit by escalating ground rents which have left them heavily out of pocket and struggling to sell homes on as well as claiming they weren’t properly informed during the buying process.

“Investors will be relieved that Persimmon has nipped this issue in the bud by extending and solidifying some of the existing measures put in place to mitigate the issue.

“And while it removes a potential revenue stream for the company it also builds on the existing work it has done to address historic issues with build quality and customer care as well as excessive executive pay.

“Given the support the sector gets from the state-backed initiatives like Help to Buy and the mortgage guarantee scheme, it can’t really afford to put a foot wrong and Persimmon’s actions will ramp up the pressure on the other names under the CMA’s microscope – Countryside Properties, Barratt Developments and Taylor Wimpey.”

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