Markets on the whole are a little bit better as we await the outcome of the Federal Reserve meeting and the outcome in terms of US interest rates.
Barclays’ shares were trading 2% higher this morning, on the back of solid numbers which show revenues grew by 5% and pre-tax profit has also increased by 25% to a total of £3.14bn. However, if we look at the Return on Equity was below its forecast and versus the rest of its competitors at 5.9%. Apart from the trimming of various business, the company has not benefited from the mergers and acquisitions boom that we have seen across the markets, that use Investment Banks as advisors and therefore generate large fees. By starving the investment bank of a balance sheet, it has limited its effectiveness to ride these “boom” years and it is no great surprise that the shares are still some way off 2014 highs and little changed in the last 24 months.
The UK housing sector continues to power ahead and this morning we have seen strong operational performance from Taylor Wimpey, plus Foxtons and Rightmove. Numbers at Taylor Wimpey were a knock out as half year pre-tax profits have increased by 33% as the structural shortage of UK housing supply continues. TW are now in a the position where they have a large enough land bank that they can continue to keep handing back excessive profits back to shareholders via a special dividend. Whilst we think the company (and for that read sector) are in a sweet spot as they can control supply and therefore pricing, we are very aware of the valuation of the business versus book value. For this it is difficult to justify any new exposure unless for income purposes.