The pleasures of privacy

Few escaped the week’s carnage, which sent shares tumbling to half their level in the 1990s boom. On Monday alone, Wilson Bowden was down 26.5p, Barratt 22.75p and Balfour Beatty 14p. In all, shares in 28 of the 38 quoted construction firms fell. As troops mass in the Gulf, investors flee to the hills.

Share misery is not a new emotion for the average construction boss, of course. Even when times were good, their stocks were low. But now the outlook is worse than ever. Apart from market turmoil, the egregious Amey saga continues, and fears are growing over the mountains of debt stashed in PFI special purpose vehicles (see financial news). More’s the pity, because for all its risks, the PFI is filling order books as the commercial market goes to hell in a handcart: the talk in the Square Mile is all about a “double dip” recession in property. Now Martin Hewes, our resident economist, is predicting that construction will grow by just 0.9% this year, and fall in 2004.

The most likely departees are housebuilders, whose year-on-year profit growth and double-digit margins have never been reflected in their share price. But don’t rule out contracting minnows who’ve disappeared from investors’ radar. As for larger firms, the cost of a buyback may be prohibitive, but it’s not impossible. It has happened in the USA and Europe, and a similar trend is discernible here: Southern Water did it, and so will Safeway if Philip Green’s bid succeeds.

As well as saying goodbye to the struggle to raise capital, or to chase acquisitions while hamstrung by low share values, private firms can spare themselves the need to comply with post-Enron accounting rules. These will make it tougher than ever to present a plausible balance sheet to jumpy investors every six months, and those with PFI stakes may find their position undermined by a crackdown on SPVs. Market confidence in construction is so fragile that if one firm sneezes, the City thinks the rest have the Black Death. And private firms ought to find investors more appreciative of the ever-rising demand for housebuilders’ product, and contractors’ positive cash flows and good returns on capital employed. As a result, bosses are likely to be better rewarded. And – just imagine! – no more breakfast briefings for the analysts. Croissants will never have tasted sweeter.