March 2008

It's all happening at Humberts!

EVENTS at the Humberts Group have certainly been moving quickly of late.

The most recent was the appointment of ex-Countrywide man Mike Nower as interim chief executive officer and non-executive director.

Although Humberts plan to recruit a new chief executive, Mr Nower, 58, will stay on the board after this appointment, so the group can continue to benefit from his expertise, according to John McLean, Humberts’ executive chairman.

“Mike has a complete understanding of property services which, together with his financial experience, will be a great asset in developing the future strategy for our business,” said Mr McLean.

Mr Nower said these are challenging times for the property market but welcomes the opportunity to drive strategy for a multi-disciplinary company.

Readers will recall that for years Mr Nower was finance director at Countrywide plc and retired at the end of last year once the Apollo- backed buyout of Countrywide was successfully completed.

In our October 2007 edition, he was quoted on our front page, warning of a “tough Spring 2008” for estate agency. How right he was!

My immediate reaction to his new appointment was that Humberts have found a “heavy hitter” to turn round the group’s fortunes.

Significantly, Mr Nower will be paid through share options, the details of which had yet to be announced at the time of writing.

“We are putting our money where our mouth is,” said Mr McLean.

Prior to Mike Nower’s appointment, Humbert shareholders enjoyed a roller coaster ride.

After a troubled trading statement on January 21, shares crashed to an 8p low. The 80-office estate agency had plunged into losses and there was also a need to re-finance acquisitions of 2006 and 2007, a period when the office network expanded rapidly.

The statement also announced that chief executive Max Ziff and executive chairman Tim James were stepping down and that Mr McLean, who joined the board only a month earlier, would take on the role of executive chairman and the company’s day-to-day running.

Then on January 30, as the shares doubled to 16p, the board issued a statement about an “approach” which might lead to a bid.

Rumours circulated that possible suitors were Savills or Jon Hunt, the former head of Foxtons. “There are people expressing an interest,” said Mr McLean at the time.

Since then, the shares have retreated to 12p, well above their low, though and the appointment of Mr Nower has obviously boosted confidence.

I wonder if he was not only appointed to turn round the group finances but to help negotiate any successful merger, in the light of the earlier events at Countrywide.

One of his first tasks will be to present the full year results for the financial year ending September 30 2007. They should have been published in January but the group published instead the January 21 trading update.

Vincent Tchenguiz, who turned round Chesterton, is said to be a 25 per cent shareholder in Humberts through various investment vehicles, but he is not a board member.

At its peak price of 107p early last year, Humberts was capitalised at about £60 million, as it has 62,200,000 shares in issue. At 12p, it is only capitalised at £7 million, less than the price of some of the properties it lists on its website.

I wonder how many investors or speculators bought at 8p? They are now sitting on a tidy gain, but investors who bought last year are nursing heavy losses,

You might say that’s the ‘name of the AIM’. Shares listed on the Alternative Investment Market, such as Humberts, are often in new, fast growing companies, often involving new technology or developing countries.

Investors can make big profits or suffer huge losses, depending on the fortunes of the companies or when they buy and sell.

Why there won’t be a crash, only a slide

REMEMBER 1990 and all that? Mortgage rates shot up from about eight per cent to 14 per cent, and so did unemployment.

I believe the actual figures for mortgage arrears then were much higher than the official figures. After all, if your mortgage outgoings nearly double, it’s easy to fall a month or two behind.

Then came repossessions, negative equity and house prices down as much as 30 per cent in some areas.

I don’t think we are in the same situation now. The Bank of England’s recent base rate cut may have been only 0.25 per cent and it is not being passed on by many lenders because of the credit crunch.

But it signified the direction of the base rate is downwards, not sharply upwards.

That said, as a nation we are over borrowed, there are strains within the buy to let market, and affordability has been stretched to the limit.

More importantly, the credit crunch continues, lenders are retreating from the market, and marginal borrowers are being cold shouldered.

What I think we will see are some sharp falls in certain types of property in over supply, notably buy to let flats, and an easing off at the top end where some mega-rich foreigners will leave and other wealthy buyers may not feel so wealthy this year.

I may be old fashioned, but I still think the market is influenced strongly by first time buyers and in the past, when prices at the lower end raced ahead of first time buyers’ ability to pay, they either stood still or fell until affordability caught up. I think this could happen again. The net result in terms of prices will be a sort of standstill or an average rise of no more than five per cent.

In the meantime, inflation is reaching three per cent, but is nearer 10 per cent for some everyday items. In effect, that means a real fall in house prices, as during the mid-1970s when they rose about eight to 10 per cent per year when inflation raged at 20 per cent.

What it means for estate agency business is disturbing, especially if you study the February Rightmove house price report. On the face of it, a monthly rise of 3.2 per cent in asking prices represents a recovery on the dark days of last November and December. But we are now in the traditional Spring season of testing the market. More important, any price rises may be driven more by lack of supply than by demand.

According to Rightmove, the cost of Home Information Packs deters new sellers. The number of listings in February is well down on the same month of 2006 and 2007 and the number of properties in stock per Rightmove member branch was 64 this February against 54 a year ago. Similarly, property takes longer to sell. Prices may be resilient, depending on area, but turnover in property is well down compared with this time last year. Not a good trend for estate agency bottom lines.