07 Jun 2019

Glenveagh: Has now pre-sold its FY19 unit target

Glenveagh Properties has released a trading statement in advance of today’s AGM.  


Although no firm financial details were provided, the Board is confident “that full year results will be in line with its expectations” while the group has now sold, signed or reserved all units required to meet its FY19 completion target of 725 units (except for the prospective bulk sale of Herbert Hill’s 90 apartments in H219). This represents an increase of c.184 units in the past three months as the group reported 451 pre-sold units (ex. Herbert Hill) as at 6th March. It is very encouraging to see this target met so early in the year, although we expect there to be limited upside to the FY target given the typical 6 month lead time from reservation to closing. Its comments on buyer demand are positive, particularly at the starter-home end of the market: “strong absorption rates at existing schemes, while new launches are also performing well with robust private buyer demand”.


The group has also announced the acquisition of two sites in off-market transactions at Howth in north Dublin (a portion of the Howth Castle site recently acquired by Tetrarch Capital) and Bray, Co. Wicklow. The combined cost is €24m and the sites can accommodate 375 units. The group didn’t make any comments on the cost inflation environment or on price inflation, which we read as a positive given its comments in March on these fronts were reassuring (at the time, it noted that cost inflation was “less than 3% on current tendering”). Despite a slowdown in overall house price inflation (as evidenced by recent CSO data), we believe there is still steady low to mid-single digit price inflation at the affordable end of the new-build market.


Overall, a positive update from Glenveagh with its focus in H2 shifting from sales reservations to construction delivery


ECB hold tight & push out

Yesterday the ECB kept interest rate policy on hold, with the key rates held at -0.40% (deposit rate), 0.00% (main refinancing rate), +0.25% (marginal lending rate). This was as expected. However the ECB did deliver a change to its forward interest rate guidance, pushing out the timing of any possible increase in interest rates. The guidance now states that the ECB expects the “key interest rates to remain at their present levels at least through the first half of 2020”, it had previously stated “at least through the end of 2019”. However given the timing of ECB meetings over the summer of 2020, in all likelihood the first opportunity to hike rates would therefore be September 2020.


Today’s announcement also saw the ECB publish the final pricing details on TLTRO-III, where banks will be able to borrow 2-year funds at a rate equal to the average main refinancing rate over the term plus 10bp. The TLTRO does however include a lending incentive, whereby for those banks meeting a net lending threshold the rate applied to their loans will be equivalent to the average deposit rate over the life of the operation plus 10bp. For example if the deposit rate remained at its current level of -0.40%, then the rate for those meeting the net lending benchmark would be -0.30%. In terms of the market reaction, the benchmark EUR/USD rate is pretty much unchanged from this time yesterday, after a very rangy (1.1205 – 1.1295) post ECB announcement) afternoon session. 


Labour hold Brexit in Peterborough by-election

Labour held onto Peterborough in yesterday’s parliamentary by-election, despite a strong challenge from the Brexit Party. Its majority was 683 with 31% of the vote. Brexit’s share was 29%; the Conservatives’ 21%; and the Lib Dems were fourth with 12%. This takes the Tories’ majority, including DUP support, down to five. Formally, today is Theresa May’s last day as Prime Minister, before she becomes caretaker PM as the party goes through a leadership contest, which begins officially next week.


Thought of the day

All eyes on US employment data

Last Month’s US (April) employment print presented a picture of a US jobs markets in rude health. Non-farm payrolls rose by 263k, the biggest rise since January. Further, the headline rate of unemployment (U3) added to the favourable assessment falling from 3.8% to 3.6%, a low last seen in 1969. Note that ahead of the figures there had been some speculation that the hiring of workers for the census might inflate the payroll numbers, though this does not appear to have been born out. Indeed government employment rose by 27k, not far above March’s 10k. The US Census Bureau’s website indicates that hiring is underway, but is slowly ramping up for work to begin on the preliminary operation that begins in August. As such, whilst some workers have now been appointed and are in training, we judge that at this stage this impact on jobs gains will still be relatively limited. Bearing this in mind, our best guess is that we will see a softening in the total jobs gain in May, with the April strength (such as in construction and in professional and business services) unlikely to be repeated and amidst a prospect of a negative manufacturing sector print.


Overall, we are pencilling in a rise of 205k. For the unemployment rate, we suspect that we will see the headline rate tick-up to 3.7% as the number of unemployed rises slightly, more in keeping with the recent trend. Note that on pay growth, we saw hourly earnings growth tread water last month, remaining at 3.2% (yoy). Taking all this into account and given that Wednesday’s ADP (private sector) employment print was so disappointing, our suspicion is that we could well see pay growth nudge down this time, further removing any remaining motivation for the Federal Reserve to move to raise rates.