Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.
So, we have already ascertained that during the pandemic the leisure and travel sectors have been best avoided as investors. But property, that should be, well, safe as houses, should it not? After all, everyone needs somewhere to live.
Not so, according to property developer Countryside Properties (CSP), which, giving a trading update last month, said it had sold fewer houses and those it did sell went for lower prices. The overall effect was to create “significant” coronavirus-led disruption to its business.
Countryside said that during the 12 months from 1 October 2019 to 30 September 2020, the number of property completions fell to 4,053 from 5,733 year-on-year and the average selling price fell from £367,000 to £364,000.
However, could there be better news on the horizon? It seems the net reservation rate of 0.78 for the full year, while down from 0.84, was at the upper end of the company's target range of 0.6 to 0.8 and was achieved despite increased cancellations because of customer uncertainty caused by the pandemic.
Looking ahead, the order book is strong, up 17% at £1.4 billion and the company has said it intends to reinstate its profit guidance for the 2021 full year when it posts its 2020 full-year results this coming Thursday.
Of course, the pandemic has not been Countryside’s only ‘issue’ during 2020, especially when it comes to buyer confidence. Back in September the UK competition watchdog effectively escalated its year-long investigation into the sale of new-build properties using leaseholds by naming Countryside as one of the housebuilders it was looking into.
Countryside is one of the four largest housebuilders in the UK, alongside Barratt Developments, Persimmon Homes and Taylor Wimpey who are being investigated for allegedly ripping off leaseholders in a potentially explosive mis-selling scandal.
The watchdog has written to the four companies “outlining its concerns and requiring information” into claims by what it - the Competition & Markets Authority - has dubbed “leasehold prisoners” who have been trapped in properties they cannot sell as a result of provisions inserted by these housebuilders. The number of leaseholders affected runs into thousands.
The knock-on effect has already been huge. In May 2019, Liverpool council said it would no longer work with housebuilder Countryside as a result of the leasehold scandal. And Taylor Wimpey has already set aside £130 million to settle disputes. Countryside is also going to need deep pockets if the complaints are upheld.
Talking of cash, it has been, cap in hand, to shareholders over the summer. In July it raised £250 million through the placing of 74.6 million new ordinary shares. Some £100 million of that has been used to strengthen the group’s balance sheet, with the remaining £150 million earmarked to accelerate the growth of the Partnerships division, with the opening of three new regional businesses and a further eight in the pipeline. The development of this part of the business could increase group profits boosted significantly, Countryside says, with the enlarged division potentially growing to around 75% of group profits.
Brokers have stayed notably quiet on Countryside since the CMA probe has been announced. Back at the start of summer though they were all positive on the stock, with Peel Hunt reiterating its buy investment rating, although it cut its price target from 400p to 380p and Jefferies International also maintaining its buy rating and raising its price target to 469p, from 443p.
Countryside shares are currently trading around 442p.
More on Countryside Properties
Important information: Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. When you are thinking about investing in shares, it’s generally a good idea to consider holding them alongside other investments in a diversified portfolio of assets. Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.
Market correction is coming, but investors should ride it out
When doing nothing is best