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Thursday 27th November 2008
By Graeme Davies
4 December 2008
The recession is well and truly upon us and few sectors are likely to escape unscathed but if it is possible to look beyond the next 12-18 months of pain some companies who are prepared to be bold in the downturn will emerge stronger and with bigger market share of their respective sectors.
When times are hard it is often the bold who emerge as winners, providing they have the financial strength, a particularly important factor in these credit crunched times when bank lending remains scarce. With government spending to be ramped up in an attempt to lessen the crippling effect of the recession on the economy, having solid financial backing could help companies grab a bigger slice of the public spending pie in the years to come.
So it was no surprise to see some bullish comments about the FM sector from one participant recently in the form of the newly rebranded Balfour Beatty Workplace, formerly Haden Building Management. The rebranding to emphasise the backing of the financial strength of the wider Balfour Beatty group is aimed at grabbing a bigger slice of what its management see as a key growth sector for the overall business.
Already a growing influence in the sector, the Balfour Beatty Workplace business wants to maintain its 20 per cent a year growth rate and is aiming to build a £1 billion turnover business within five years. It may also look to take advantage of any weakness in its rivals through opportunistic acquisitions. But this could require returning to the market to seek funding from investors who are currently bereft of any confidence.
Apart from the monster fundraising for the banking sector, much of which has actually been provided by, or backed by, government funds, investors' willingness to dip into their pockets is pretty thin on the ground right now.
But, those with the foresight, confidence and deep enough pockets to back the right companies could see positive returns over the next few years.
Seasoned investors who have been through several economic cycles before are not scared by the current economic conditions, in fact the best investors, such as American investing legend Warren Buffett, thrive in such markets. Following the maxim of investing at the moments of maximum distress, value investors relish the chance to pick up bargains at times such as this and this often explains why stock markets tend to recover several months, or even quarters, ahead of the wider economy.
Of course we remain in the early days of this recession and few can confidently predict how deep and long it will be as its nature is unlike any we have faced before. But it is unlikely we are entering a new phase in the global economy. We are most probably just going through a good old fashioned downturn which some would argue was long overdue. Those subscribing to this view are likely to consider moving back into the equity markets as 2009 develops. For those with a long-term view the value on offer will start to look particularly tempting as we move through the early months of 2009.
Graeme Davies writes for Investors Chronicle