Neil Collins’ Notebook – Putting the boot in

Here’s a good tip for investing: never buy a share that has been publicly listed for less than a year. This rather spoilsport rule is hardly helpful to the Stock Exchange’s business of expanding the number of listed shares, and you will miss some bargains, but it will almost certainly improve the overall performance of your portfolio. If you are really tempted by a new issue, then first look carefully at where your money is going – into the business you are buying, or into the pockets of existing shareholders?

The latest exhibit here is Dr Martens, whose current owner, private equity group Permira, acquired the business from the founders seven years ago, and is now looking to take some profits. Quite a profit it is, too. The vendors are looking for a valuation of £3bn for a company it bought for £300m in 2013. We have yet to see a balance sheet, but the proceeds are all going to Permira.

The sales pitch is of an iconic British brand, which it is, and the hint that this is British manufacturing, which it isn’t. Only one pair in every 100 is made in its Northampton factory. The rest come from the low-wage economies of the far east. The boots may appear to be indestructible, but they no longer come with a “lifetime guarantee” and questions have been asked about deteriorating quality.

Still, it remains a fine brand, although Permira has recently pushed this idea to its limits. The last time it tried this on was with Aston Martin, backing a prospectus that looks hilarious in retrospect. It was clearly an overpriced fantasy, which did not stop some fund management groups plunging their clients’ cash into the offer (and losing it).

Permira has recruited seven banks and advisers to get the bovverboot message across to the markets, which triggers another investing rule: the greater the number of banks, brokers and advisers to an issue, the more reason to avoid it. Permira and pals gave us AA and Saga (both competing with Aston for duds-of-the-decade awards) and is merely one of the pack of private equity businesses which have proved that there is no business that cannot be prettied up enough to launch onto the public markets under the right conditions. We should welcome them all, of course, but let the DMs wear in before thinking about buying the shares.

Please bung us more cash

The housing industry is holding out the begging bowl again. It’s not for us, you understand, but the hard-pressed buyers of our lovely homes could really do with a break, so please can we extend the stamp duty holiday beyond March? This concession is the latest in a long line of bungs to the housebuilding industry, all of which have allowed the vendors to raise their prices.

This week it was typical that Vistry, a business that built such shoddy houses that it changed its name from Bovis Homes to escape its dire reputation after being found out for building unfinished homes, admitted that things were booming. “I’ve not been this happy since the start of the year,” chief executive Greg Fitzgerald told the FT. The stamp duty deadline has raised the pressure to get on the housing ladder, while Help to Buy (builders’ yachts) has done wonders for margins across the industry. One-third of Vistry’s sales were to Help to Buy buyers.

Once introduced as emergency measures, these subsidies are very hard to stop. Despite the evidence that Help to Buy has just raised selling prices, the scheme has been given another reprieve, albeit restricted to first time buyers from April. Both measures have done wonders for house price inflation. The Halifax index rose by 6 per cent last year, bringing a warm glow to homeowners and ratcheting up the cost for those trying to join them.

This is spun as a good thing; indeed, one estate agent pointed to a slowdown in December, worrying that “the party is winding down.” Since estate agents feed off volume and rising prices, last year’s party is likely to be followed by this year’s hangover. Despite the continuing desperate stimulus measures, a fall in house prices this year looks likely, as unemployment rises in our shrunken economy.

Andrew Wishart at Capital Economics expects most of that 6 per cent rise will reverse in 2021, which the perma-bulls of the housing market would view as a disaster, and a reason to press for more government support.

Today’s mortgages are affordable to most new buyers only because interest rates are so low. Were the Bank of England be forced to raise them even slightly, the impact on recent homebuyers would be dire indeed. For would-be homeowners, lower prices is the best thing the government could do for them. Much more likely is that this administration, like so many others before it, decides that the political cost of falling house prices is just too painful to contemplate.

How to get a green glow

If you think offshore wind is the thing of the future, then Orsted is the stock for you. Having changed its name from the unfortunate DONG, and got shot of its oil and gas exploration businesses, it is now as pure as the wind that blows across the North Sea. This week it told us that 2020 was breezier than usual, and warned that this year might be calmer, and thus less profitable.

Its fans (sorry) won’t mind. Seabased windmills are the future and the shares, selling on over 30 times latest earnings and yielding less than 1 per cent, barely budged. Many more of these rotating triffids are due to be planted to meet burgeoning demand for their output, and the cost, we are told, is coming down all the time.

But is it? The economics of offshore (“the Saudi Arabia of wind” as our Dear Leader put it) are notoriously opaque. The headline figures for the cost have been coming down, but in effect the contracts are little more than options to supply, pitched on the assumption that fossil fuel prices will be forced up, or that legislation will oblige the electricity grid to take “green” energy.

In practice, the costs are going up. These huge structures sit some way out to sea in a harsh environment, and conditions will get uglier as the easiest areas fill up. Nobody knows how long they will last, and fixing them on-site presents a severe technological challenge. To rub sea salt into the British wound, they are built elsewhere. Most of the UK jobs are in maintenance.

None of this deters Orsted’s fans, who can feel a warm glow from saving the planet and look down on those hydrocarbon dinosaurs like BP, on 19 times (depressed) earnings and yielding 5 per cent. You pays your money…

*For a scary little potted history of how energy crises can creep up on us, try the latest column from Reuters’ John Kemp. It couldn’t happen here, of course.