2007 Revisited?

Most of us at Ortus team spent Wednesday in Birmingham at the NACFB Expo.  We set up a pub serving free pints and, unsurprisingly, we were extremely busy – especially after midday.

It wasn’t just us who were busy.  The entire place was buzzing and had the feel of a sector in full flight.  Indeed, it reminded me of the big mortgage expos I used to attend in 2006 and 2007 during the credit boom.  And the positive economic news which seems to flow on a daily basis fuels this sense of déjà vu.

The Office of National Statistics has just released official figures for the 3 months from February to April showing the jobless rate is holding steady at 5.5% – the lowest level since August 2008.  Meanwhile wage rises grew by 2.7% – their fastest rate since August 2011.  And compared with the previous 3 month period, 114,000 extra people found work and the employment rate for women hit a record high of 68.6%.

As leisure specialists, we at Ortus have a strong interest in the resulting fortunes of pubs and restaurants.  Therefore, we were interested to read a research note by Cenkos leisure analyst Simon French which predicts that: “Pub and restaurant companies are entering a period of above average earnings growth driven by above-inflation like-for-like sales growth, new site openings, a benign cost environment and selective merger and acquisitions. We expect this to last for up to three years …”

Simon French goes on to say that even if interest rates increase and reduce disposable income, eating out is now so embedded in the UK culture and social calendar that it should still remain strong.

A glance at the Propel Newsletter points to a similarly positive trend for beer sales and cites the latest ‘Beer Barometer’ from the British Beer & Pub Association (BBPA), which reports that beer sales are continuing to grow year-on-year.  Sales at the end of Quarter One of this year increased 1.5% over the past 12 months, having previously suffered nine consecutive years of decline which saw beer sales slide by a 24%.

The benefit of all this beer being consumed extends far beyond the enjoyment of the drinker … beer is an industry which, according to BBPA chief executive Brigid Simmonds, employs 900,000 people and is worth £22 billion to the UK economy.

So, the outlook seems good and this might explain the positive vibes in Birmingham.  However, while this may feel like 2006/2007, some things are markedly different.

Many of the key people in our sector were bruised by the collapse in 2008.  I was certainly among them and, while it hasn’t reduced my determination to write deals and help grow the Ortus business, I believe long term success can only be built on deals that give borrowers what they need, yet also get repaid without the need for enforcement.

This sense of responsibility and control extends across a large section of the broker and lender community.  At the recent AOBP Forum, one of the questions from the audience specifically challenged the lender panel on the dangers of competing for business by raising LTVs.  The two panel members who answered were both set in their view that taking silly risks was not how they planned to grow.

And it was interesting that, in his speech during the Bridging & Commercial Awards last week, Mo Malki chose to mention the importance of responsible lending.

So, while the Birmingham expo had echoes of 2006/2007, the industry feels (to me at least) very different this time.  I don’t think history is repeating itself.  Time will tell if I’m right.

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