On the face of it, it sounds as though our industry is in pretty decent health. Small and medium sized installers and fabricators talk about business being brisk, growth being on track, lead levels good and sales strong too.
Yet, there are areas where things aren’t doing so well. And the reports seem to suggest it is the very biggest in our industry who are suffering to varying degrees this year. Look a little deeper, at some of our biggest publicly traded companies, and their share prices seem to back up those reports.
All shares are on the slide
If you’re a big business in the UK window and door industry at the moment, things could be better. Last week I talked about the problems at major group Entu. You can read that particular post here.
It’s worth taking a look at their share price:
The share price has fallen to just 11.25p from a high of well over 140p per share. That is a a dramatic fall in any sense of the word. KPMG are currently working with Entu on a rescue package. But, if you’re at the stage of getting KPMG in, it doesn’t look good. I don’t see Entu share prices rising any time soon.
Entu are certainly not the only major UK fenestration company to suffer a dramatic drop in their share price. I think there’s something in the water. Take a look at the share prices of these five other companies.
Not a single one of these makes for good reading if you’re at the head of any of these companies. Although I have included Saint-Gobain in this list, they are the best of a bad bunch of 6. There are a few that stick out for me the most however, and that is Safestyle, Eurocell and Epwin. Eurocell’s decline has been steady, but maintained, and certainly nothing as dramatic as the drop in the Safestyle price. To give extra context, the day this was written, the Safestyle share price fell 16% in a single trading session. It has now dropped from 309p per share to 215.50p per share in the space of less than 3 weeks. Traders cannot dump this share quicker.
So, what is going on? Small to medium sized installers and fabricators are reporting good business this year. This flies in the face of what we can see in these charts above.
All about the demographics?
I was speaking with an industry friend of mine over the phone last week, and we got to talking about the problems going on with the very biggest in our market. Naturally, Entu came up. But we did talk about the wider situation when it came to the nationals. From what we both know, the picture isn’t looking good.
So an idea was put to me from my friend of mine, and I agreed. The very biggest aren’t having a good year, some worse than others. At the same time, there has been a gradual slowdown in the overall UK economy. Inflation is rising and wage growth has plateaued. It is perfectly possible that this set of economic conditions, added with uncertainties coming up in the next couple of year, is causing the very demographic that the nationals rely on to stop spending.
It’s generally accepted that the nationals have a pretty defined demographic. Young people, perhaps first time buyers, who want to make home improvements but are limited on budget and won’t be attracted to the more artisan window and door installers out there. They are perhaps more likely to be attracted by the “sales” and “discounts” constantly advertised by the nationals. The problem is, this is also the group of people where even small changes in the economy can make them put the breaks on spending. For example, rising inflation and slow wage growth can put a squeeze on their disposable income, so big ticket purchases like windows and doors slip down the list. Job uncertainty can cause spending to stop, if they think bad news might be on the way. If this group stops spending, the very biggest have a pretty big problem. Could this be once of the causes of their share price problem?
In comparison, there are plenty small to medium sized installers and fabricators doing very brisk business. Often though, this size of company is placed at the higher end of the market. Selling bespoke, higher quality products. These types of companies often attract a different kind of customer. Perhaps those where bills matter less. Mortgages are paid off. Business leaders, self-builders, architects, the retired. The type of people where if there is a little bit of a slowdown or inflation starts to rise it doesn’t really affect them. At our place, it tends to be the middle-aged upwards that we have through our door. Self builders, retired etc. We have hired another fitting crew this week to help reduce our led time. Business is very good at the moment, and my friends who I talk to, who have similar sized businesses to ours are doing well too. Two very different stories are playing out at the moment.
Investors offloading risk?
The above is a very local theory. But I think there is something larger at play here too. All the companies above are traded companies on stock exchanges. There will be plenty of investors here and in other countries who will hold shares in these companies. There is no doubting Brexit has caused uncertainty. As house price growth slows, house building remains stagnant, inflation rises and wage growth stalls, there doesn’t appear to be much of a reason for investor to plough their money into UK companies exposed to the construction sector.
In fact, it appears they’re going into reverse, selling their shares and offloading risk and exposure. Safestyle looks to have been hit by risk-off trades the worst. Losing nearly 100p per share in value in the space of less than three weeks. Epwin hasn’t had a good run either. Frankly this has been a spectacular sell-off, and perhaps one that many didn’t see coming.
The share prices of these companies will be worth watching this week. In some areas the sell-off appears to be accelerating, and you would imagine that the aforementioned companies will be looking at way to steady the ship. If investors have lost confidence however, it can be very difficult to turn that around if they have already made their minds up on those trades.
It’s not all bad though. With many SME’s in the UK fenestration industry apparently in good health, there is a fantastic opportunity for them to step in, become the powerhouse, raise standards and start to eat away at market share on a local level. There is plenty of business still to be done out there, but it’s a different kind of business that smaller companies are better placed to make the most of.
Some interesting and turbulent times ahead I suspect.
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