The Bank of England has stepped in and implemented measures to cool the overheating housing market, as economists warn of an impending property bubble. The market reacted positively to the timely intervention with all the house builders seeing share price rises.
Who Else Will Reap Rewards?
The UK housing market is the biggest driver of home improvement and furnishing retail sales. Analysts are predicting that over a million people will move house this year, and they are anticipating growth of 5.5% this year and 6.3%in 2015.
As buyers embark on turning new houses into homes, footfall consequently finds its way to the DIY and furnishing retailers. Here are three companies that could benefit:
Carpetright plc (LSE: CPR) is Europe’s largest flooring retailer its business is closely tied to the property market because householders buy new flooring when they move house. Although the UK’s property market surged recently the company has issued a series of profit warnings.
Lord Harris, founder and chairman of Carpetright said the time lag between buying a property and spending money on refurbishing it has increased as buyers “have to pay a larger deposit than they used to, which gives them less money. Buyers are now waiting to fit new carpet and flooring whereas before it was one of the first things they did.“
It is however upbeat about future prospects for the business, with the launch of several new products in a new and rapidly growing segment. Group revenues declined 2.2 per cent in the year ending April, with an underlying pre-tax loss of £4.6m compared to losses of £9.7m for the previous year.
Kingfisher plc (LSE: KGF) is Europe’s largest home improvement retailer and the home of B&Q which is the UK’s leading DIY and garden center retailer Ian Cheshire, chief executive of B&Q owner Kingfisher, has made it clear he believes a return to a more buoyant housing market will reverse the decline that has hit the DIY market in recent years.
The DIY market has shrunk to £7.54bn in 2012 from £9.76bn in 2004, but Cheshire believes this is due to a lack of first-time buyers and not a more fundamental decline. Investors seem to think he is right – Kingfisher’s shares are up more than 40% this year to date.
Travis Perkins plc (LSE: TPK) is the building materials supplier to the trade, and the company behind brands such as Plumbing Supplies, Tile Giant and Wickes. It is now one of the largest suppliers to the UK’s building and construction industry. Time-pressured homeowners are increasingly turning to tradesmen to do refurbishment work that they would have previously tried themselves and Travis Perkins has seen its share price increase almost 13% on last year’s price. The company has eleven analysts that have assigned it a buy rating and the average price target is £18.25 and is currently trading at £16.45
Lisa Walls-Hester does not own shares in the above companies.