The Investment Column: Housing crisis is bad news for Taylor Wimpey

Northern Foods; Travelzest


Our view: Hold

Share price: 159p (-13p)

Homebuyers on both sides of the Atlantic are in their bunkers. Which is grim news for Taylor Wimpey, the UK's largest housebuilder created out of last year's merger of Taylor Woodrow and George Wimpey.

It limped to the finishing line in 2007 making profits in line with expectations, according to a trading update yesterday, but it was a struggle. UK completions fell 5.8 per cent to 20,645. In the US they dipped 23 per cent to 6,740.

It is what happens next which matters. The UK housing market is deep in the doldrums. The company admits it would probably need two cuts in interest rates to trigger an early and meaningful recovery.

Selling prices, up a modest £5,000 to £190,000, will be flat this year. Margins, which it hopes to push up to 14.5 per cent, will be under pressure. The company has already been linked with reports of using strong-arm tactics on its suppliers in a bid to get them to accept cuts in payments.

New homebuyers will need to be seduced into deals. That will mean bigger and sweeter incentives that will squeeze margins. At the same time the group is facing continued steep rises in the price of raw materials – up between 3 and 4 per cent in 2007.

The US market is expected to be virtually comatose. Spain, although far less important, is also in serious trouble and the value of its land holdings is expected to be cut.

On the plus side the group's housing bank is healthy – enough for the next five and a half years – so the £1.5bn or so that it would have spent acquiring land can be tucked away or used to buy back its shares. The market expects around £500m of share purchases in 2008.

The shares sell on just 5.5 times expected earnings for 2008. That is cheap but it did not stop the price falling further yesterday. The trouble is that the whole sector is depressed and will need lower interest rates and a greater willingness to lend by the banks in time for the all important spring selling season. Hold for now.

Northern Foods

Our view: Avoid

Share price: 85.75p (+2p)

After wiping 37 per cent off the value of the shares over the past year the market has granted Northern Foods, supplier of Goodfellas Pizzas and Fox's biscuits, a reprieve.

The price edged up nervously yesterday as dealers responded to talk that it is becoming a recovery play. It still looks early for such optimistic assumptions.

The company rewarded the market's faith by confirming that it is on course to meet expectations for last year – profits of around £47m. Sales over the important Christmas period held up well, rising 3.5 per cent. There were some strong individual performances – the chilled food side pushed up volumes 4 per cent.

However, the picture is not as clear as it looks. The improvement in sales was due entirely to price increases forced on Northern by the soaring cost of key ingredients such as wheat. Volumes were unchanged.

Customers such as Marks & Spencer were willing to pass on Northern's increases to their own customers. Official figures put food inflation running at well over 7 per cent.

At some stage, as family budgets come under increasing pressure and takings drop at the checkouts, the supermarkets are going to resist price rises by their suppliers. Firms like Northern – and Hovis bread-maker Premier Foods, which has also taken a caning recently – will be told to go back to their factories, become more efficient, and take some of the hit themselves.

That is unfair because Northern has undergone a major restructuring, reflected in a strong performance from its chilled food business and a return to profits by its bakery business. But history tells us there is no hiding place when major customers are no longer willing to absorb a supplier's price increases.

Northern boss Stefan Barden believes greater emphasis on quality will put it in a good position to negotiate price rises with retailers. Where has he been for the last 30 years? Avoid.

Travelzest

Our view: Hold

Share price: 98.5p (+5.5p)

Travelzest is a holiday tiddler with dreams of becoming a big fish. So far its ambitions have not been recognised on AIM, with the shares well below their 126p issue price of 2005.

But that could change. Travelzest has assembled an intriguing portfolio of holiday ventures. An online travel agency offers the usual budget priced flights and cheap accommodation. But it also serves as a useful promotional tool cross-selling holidays and adventure packages offered by the group's other specialist tour operating companies.

These are aimed at better-off travellers in search of experience rather than a tan on the beach. These are also the sort of customers affluent enough not to be put off taking holidays when times get tough – like now. So there are opportunities to visit Verona and take in best seats at the opera, or have a ringside view of a marathon in the Sahara, or even summon the nerve to join up with Peng Travel, a company well known for its naturist holidays.

A third of last year's £38m turnover was generated from its online holiday business in Canada, which is counter cyclical to the UK so earns the bulk of its profits during the winter period.

The UK side is due to get a kick start from the relaunch of its holiday.co.uk venture. Group profits for last year came in slightly ahead of forecasts at £3.2m and could rise to £4.9m this year, although it is still early in the booking season.

Travelzest is a niche operator insulated from the sharp dips which occur at the volume end of the business. The shares look cheap at just 8.7 times expected earnings, but it needs to demonstrate further solid progress before any serious re-rating is likely. Hold.

Sport
footballLIVE City face Stoke, while Warnock returns to Palace dugout
Life and Style
3D printed bump keys can access almost any lock
gadgets + techSoftware needs photo of lock and not much more
News
Paul McCartney backs the
people
News
i100
PROMOTED VIDEO
Arts and Entertainment
Inside the gallery at Frederick Bremer School in Walthamstow
tvSimon Usborne goes behind the scenes to watch the latest series
Life and Style
Silvia says of her famous creation: 'I never stopped wearing it. Because I like to wear things when they are off the radar'
fashionThe fashion house celebrated fifteen years of the punchy pouch with a weighty tome
Arts and Entertainment
Gregg Wallace in Summer's Supermarket Secrets
tv All of this year's 15 contestants have now been named
News
i100Steve Carell selling chicken, Tina Fey selling saving accounts and Steve Colbert selling, um...
Life and Style
A picture taken on January 12, 2011 shows sex shops at the Paris district of Pigalle.
newsThe industry's trade body issued the moratorium on Friday
Arts and Entertainment
Could we see Iain back in the Bake Off tent next week?
tv Contestant teased Newsnight viewers on potential reappearance
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
News
i100
News
The slice of Prince Charles and Princess Diana's wedding cake and the original box from 29 July 1981
newsPiece of Charles and Diana's wedding cake sold at auction in US
Voices
The Ukip leader has consistently refused to be drawn on where he would mount an attempt to secure a parliamentary seat
voicesNigel Farage: Those who predicted we would lose momentum heading into the 2015 election are going to have to think again
Arts and Entertainment
Cara Delevingne made her acting debut in Anna Karenina in 2012
film Cara Delevingne 'in talks' to star in Zoolander sequel
Sport
Mario Balotelli pictured in his Liverpool shirt for the first time
football
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Network Engineer (CCNP, CCNA, Linux, OSPF, BGP, Multicast, WAN)

£35000 per annum: Harrington Starr: Network Engineer (CCNP, CCNA, Linux, OSPF,...

DevOps Engineer (Systems Administration, Linux, Shell, Bash)

£50000 per annum: Harrington Starr: DevOps Engineer (Systems Administration, L...

Data Scientist (SQL, PHP, RSPSS, CPLEX, SARS, AI) - London

£60000 - £70000 per annum: Harrington Starr: A prestigious leading professiona...

Financial Technical Consultant (C++, C#, Finance, MSc, PhD)

£50000 per annum: Harrington Starr: Financial Technical Consultant (C++, C#, F...

Day In a Page

Ukraine crisis: The phoney war is over as Russian troops and armour pour across the border

The phoney war is over

Russian troops and armour pour into Ukraine
Potatoes could be off the menu as crop pests threaten UK

Potatoes could be off the menu as crop pests threaten UK

The world’s entire food system is under attack - and Britain is most at risk, according to a new study
Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

Seoul's plastic surgery industry is booming thanks to the popularity of the K-Pop look
From Mozart to Orson Welles: Creative geniuses who peaked too soon

Creative geniuses who peaked too soon

After the death of Sandy Wilson, 90, who wrote his only hit musical in his twenties, John Walsh wonders what it's like to peak too soon and go on to live a life more ordinary
Caught in the crossfire of a cyber Cold War

Caught in the crossfire of a cyber Cold War

Fears are mounting that Vladimir Putin has instructed hackers to target banks like JP Morgan
Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years

Salomé: A head for seduction

Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years. Now audiences can meet the Biblical femme fatale in two new stage and screen projects
From Bram Stoker to Stanley Kubrick, the British Library's latest exhibition celebrates all things Gothic

British Library celebrates all things Gothic

Forthcoming exhibition Terror and Wonder: The Gothic Imagination will be the UK's largest ever celebration of Gothic literature
The Hard Rock Café's owners are embroiled in a bitter legal dispute - but is the restaurant chain worth fighting for?

Is the Hard Rock Café worth fighting for?

The restaurant chain's owners are currently embroiled in a bitter legal dispute
Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival

In search of Caribbean soul food

Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival
11 best face powders

11 best face powders

Sweep away shiny skin with our pick of the best pressed and loose powder bases
England vs Norway: Roy Hodgson's hands tied by exploding top flight

Roy Hodgson's hands tied by exploding top flight

Lack of Englishmen at leading Premier League clubs leaves manager hamstrung
Angel Di Maria and Cristiano Ronaldo: A tale of two Manchester United No 7s

Di Maria and Ronaldo: A tale of two Manchester United No 7s

They both inherited the iconic shirt at Old Trafford, but the £59.7m new boy is joining a club in a very different state
Israel-Gaza conflict: No victory for Israel despite weeks of death and devastation

Robert Fisk: No victory for Israel despite weeks of devastation

Palestinians have won: they are still in Gaza, and Hamas is still there
Mary Beard writes character reference for Twitter troll who called her a 'slut'

Unlikely friends: Mary Beard and the troll who called her a ‘filthy old slut’

The Cambridge University classicist even wrote the student a character reference
America’s new apartheid: Prosperous white districts are choosing to break away from black cities and go it alone

America’s new apartheid

Prosperous white districts are choosing to break away from black cities and go it alone