TWO pieces of news balanced each other yesterday to underline the subtle ways the government stimulus is feeding into the economy. The Australian Bureau of Statistics weighed in with housing finance numbers for January that showed that the front-end boost from one of the key elements of the Rudd government's stimulus package, the expanded first home buyer's grant, is history.
And Alesco, a company that relies on house-building activity, revealed that it was still waiting for the first home buyer effect to show up in its businesses.
Alesco has been one of the stars of the sharemarket's rebound.
Its shares were in the cellar at 65¢ a year ago and hit a high of $5.85 on October 21 as investors anticipated the fruits of last year's artificially stimulated home-building boom.
They were back down to $4.56 on Tuesday and fell by $1.44, or 31 per cent, yesterday after Alesco's announcement that it was downgrading its 2009-2010 profit estimate by about 30 per cent.
Alesco isn't a household name, but the things it sells are, literally. Anyone who has either built or renovated a house will have come across Alesco building products, including B&D roller doors, Wilsonart laminates, Blum cabinet fittings and Parbury kitchen fittings.
Through its water products and services division it is also a major supplier of systems that collect and distribute scarce water, in houses, factories, offices and on farms.
Those who have installed a water tank at home, for example, know that the cost of the tank is about half the total cost: the rest goes on pumps, pipes and other paraphernalia, and Alesco sells it all.
The group's portfolio is topped off by a division that supplies specialty products to the construction industry and tyres to the mining sector, and the divisions are all weighty within Alesco, with their contributions to the group's revenue of $410 million in the November half ranging from about 20 per cent for the construction and mining, water and garage door business units, to 36 per cent in the building products division.
The November-half profit revealed issues for Alesco's water division, however, and they are continuing: its earnings before interest and tax fell by 65 per cent in the November half and were the major factor in Alesco's 29 per cent overall profit slide.
And in its profit downgrade Alesco says the water division's third-quarter earnings were well below expectations. It also flags a probable writedown, saying the carrying value of the investment will be reviewed before finalisation of the annual accounts.
The weak spot in water is more weather-related than economy-related. The water business relies on demand from households, businesses and agricultural operators for water-conserving products and systems - and that demand is falling as the drought recedes in east Australian states.
The real drivers for Alesco are home building and general construction. In an average year, 60 per cent of the group's revenue can be traced back to demand for new housing and renovations, and another 20 per cent is sourced from construction.
But there are lags in the process, which is why Alesco's profit downgrade adds to yesterday's news that the number of finance commitments for owner-occupied housing fell by a seasonally adjusted 7.9 per cent in January compared with December, after falling by 14 per cent between September and December.
Alesco's benchtops, drawer handles, wire baskets, drawer runners and garage doors are among the last things to be installed in a new house.
The house has to be to all intents and purposes built before the cash registers ring for the group, and when it reported its first-half profit in late January. Alesco observed that last year's increase in house starts on the back of the first home buyer giveaway was not yet showing up in its turnover.
The group added yesterday that conditions in the markets it operates in remained soft in February, and yesterday's housing finance numbers underline that the first home buyer boost is temporary.
Financing commitments for investment housing rose by 0.9 per cent month-on-month, but finance for housing construction - Alesco's bread and butter - fell by 3.9 per cent, and finance for first home buyers fell from 21 per cent of total financing in December to 20.5 per cent, close to the long-term norm, and well below a high of 28.5 per cent in May last year.
But that is to be expected as the first home owner boost fades, and, as Alesco's announcement underlines, last year's boost is still feeding into the housing industry.
It is no longer influencing house finance approvals. But it is still generating work for plasterers, electricians, painters, gardeners, bench-top vendors such as Alesco and a host of others.
The same thing is true of the stimulus spending generally, and suggestions yesterday that the slide in house finance approvals should persuade the Reserve Bank to hold off on further rate rises should be seen in that light: the stimulus may have peaked, but it isn't dead; nor is the Reserve's program of interest rate rises.
mmaiden@theage.com.au
