HOUSEBUILDER Berkeley Group is a contra-thinker in a punch-drunk sector at present. The company is hoarding money to buy land, while many of its peers are sharply cutting back on land purchases to save cash.
That may have a lot to do with the sca
le of debt of the likes of Barratt Developments (£1.7 billion) and Taylor Wimpey (£1.45bn).
By comparison, Berkeley has negligible debt at £4.5 million. Even so, the land purchase strategy as the mortgage market is being strangled from different directions – falling prices and tougher mortgage conditions – is still a gamble by Berkeley boss Tony Pidgley.
Yesterday the group, which specialises in urban regeneration in London and the south-east of England, said it was deferring the final payment of its cash return programme to shareholders for up to three years as it saw such good opportunities to buy land. Hmm.
Pidgley doesn't see it as a gamble. He says: "If you buy at the right price, which you can in this distressed market, it bodes well for the future, as supply is constrained in this island.
"The reason for the decision is that currently cash is king, but also because we believe that for every pound invested today we'll show a two-pound return for shareholders within a five-year period."
Five years may be about right, certainly at least three. Pidgley admits that Berkeley has been bumping along the bottom since last Christmas and while banks and building societies are still refusing to lend it is unlikely to get better short-term.
The company's heartland, England's prosperous south-east, tends to ride the booms and busts of the economic and housing cycle. This is great in the good times. But it can be a severe handicap in the bad ones.
As a result Berkeley's shares have underperformed the chronically ill housing sector by 22 per cent since the start of 2008 as gloom has set in.
It is a resilient operator, however. Even with sales down 25 per cent in the year just gone, Berkeley still announced profits up 3 per cent to £194m. And it also has a relatively high level of forward sales at £1.2bn, which should help sustain profits at the level just announced in the current year.
Pidgley feels there is still a will to buy among consumers, but that the difficult lending conditions are at the heart of the problem.
The City focused on the positives, however, not least the low levels of debt Berkeley is carrying. The shares rose almost 5 per cent.
It will be interesting to see whether Pidgley's land-grab proves the right thing to do.
Even more interesting is that it will be quite a while before we know.
WHEN is a smooth transition also a baptism of fire? When it is a new boss at defence giant BAE Systems.
The group yesterday named chief operating officer Ian King as its next chief executive after Mike Turner retires from the top job in August.
BAE shopped around externally before deciding they had the best candidate on the doorstep.
The advantage is at least King knows the BAE ropes. He joined defence firm Marconi in 1976 as a graduate, 23 years before its merger with British Aerospace to form BAE.
But that's as smooth as it gets. For King takes over just as the British government goes to court over a Serious Fraud Office inquiry it halted into a Saudi arms deal the company was involved with.
The London High Court recently ruled that it was unlawful for the SFO, on Tony Blair's orders, to end an investigation into the Saudi allegations, which related to contracts that formed part of the AlYamamah programme between the UK and Saudi governments.
The former prime minister claimed the investigation could endanger British national security in the fight against terrorism.
In other words, King takes over with a continuing bad smell around a long- running potential scandal at BAE.
In addition, the new helmsman has pledged to implement a new ethical policy at the company, following on from former Lord Chief Justice Lord Woolf's independent inquiry that found BAE's ethical conduct has on occasion come up short.
King says the recommendations would be turned into an "action plan" by the end of July. The new boss will have to hit the ground running.
strong>RUMOUR OF THE DAY
Deutsche Bank in Chinese deal
DEUTSCHE Bank has signed a deal with Shanxi Securities to set up an investment banking venture in China, a source said yesterday.
The German bank, which suffered its first quarterly loss in five years in the first three months of 2008, planned to take a 33 per cent stake – the most allowed – in the proposed Beijing venture, the source claimed.
Beijing this year re-opened its coveted but shuttered securities industry to foreign firms after a hiatus of more than a year to let local players merge and strengthen.
Several banks – including BNP Paribas – have since expressed an interest in setting up local ventures.
Earlier this month, Credit Suisse and Beijing's Founder Securities won approval to set up their own investment banking venture.
SMALL BUT BEAUTIFUL
Galleon sails into profit after turnover soars 146%GALLEON, the Aim-listed intellectual property group, yesterday posted a maiden profit of £355,000 after publishing its interim results, bouncing back after a loss of £357,000 in the same period last year.
Turnover at the group increased by a massive 146 per cent to £5.8 million.
David Wong, chairman of Galleon, which has a market cap of about £21m, said: "Each of our divisions has continued to gain momentum and this will continue into the second half of the year. We are excited by the opportunities that we see ahead of us."
Galleon's three divisions are: Galleon Entertainment, which owns cartoons including Skunk Fu and Mysti, both shown on BBC1; Croco Worldwide, which makes Spider-Man and Pirates Of The Caribbean toys; and Phoenix, an interactive media company operating in China. It runs Super Soccer Star, a Chinese TV talent show for young footballers, in association with Chelsea Football Club.
Wong added: "The first six months have been very solid as the group moves into a profitable phase of growth. This is a huge achievement in a period when we acquired and integrated Phoenix and Yunbo in China and South East Asia."
The full article contains 1084 words and appears in The Scotsman newspaper.
