Is the UK housing market still in rude health? Three companies whose fortunes are closely linked to housing are Persimmon (LSE: PSN), Topps Tiles (LSE: TPT) andGalliford Try (LSE: GFRD), all of whom issued trading updates today.
Good news?
Persimmon said that legal completions on houses sold rose by 17% to 13,509 in 2014, while the average selling price per house rose by 5% to 190,500. As a result, full-year revenues for 2014 rose to 2.6bn, a 23% increase on 2013.
Construction firm and housebuilder Galliford Try was similarly bullish. The group reported that completions rose to 1,529 units during the first half of its financial year, a 12.5% increase on the same period last year. Average selling prices also edged higher, rising by 1.6% to 259,000.
Meanwhile, tile retailer Topps Tiles reported a 6% rise in like-for-like sales during the first quarter of its financial year, suggesting that home improvement demand remains healthy.
Clouds on the horizon?
However, despite all three firms releasing apparently strong figures, there were some signs that the market might be slowing. Topps 6% sales growth is 50% lower than the 9.3% gain in like-for-like sales the company reported during the first quarter of last year.
Persimmons statement also suggested a return to more normal levels of growth.
The housebuilder commented that it saw a return to a more traditional seasonal pattern to customer activity in 2014. Translated, this means that it saw seasonal peaks and dips in sales, rather than surging demand throughout the year.
Greg Fitzgerald, chairman of Galliford Try, echoed these comments, telling investors that housing market growth has now moderated to a more normal and sustainable level.
Which stock should you buy?
House price forecasts for 2015 are very mixed, but most seem to suggest that house prices wont change much in 2015, which could also lead to flatter sales volumes.
Against this backdrop, my pick would be Galliford Try, which offers more diverse exposure to the UK economy than Persimmon or Topps: in addition to its housebuilding arm, Galliford has a non-housing construction business with an order book thats risen from 1.75bn to 3.2bn over the last year.
Galliford currently trades on 13 times historic earnings and 10.5 times forecast earnings, with a prospective yield of 5.5%. Overall, this looks reasonable to me, and if the UK economy continues to recover, I believe Galliford should perform well over the next couple of years.
Of course, Galliford isn’t the only buying opportunity in today’s volatile market. The Motley Fool’s market-beating analysts have recently identified a number of other stocks they believe could outperform the wider market.
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Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
