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I was just looking at the forthcoming news, and see that Savills (SVS, 344p ) have their results this week (Wednesday March 12th).

A pretty non committal trading statement in January, and decent performance by the Real Estate sector (Savills classified by FTA as Real Estate) mean that this stock has been a great performer. Savills are up around 50% from their January lows, and have also outperformed Taylor Wimpey by 50% since the turn of the year.

I warned that it was too early to buy the housebuilders when I saw a director at Savills selling down his position in November at 353p. But I really now believe that any news this week from Savills is likely to be negative for the share price.

No matter what they say about global reach, 80% of operating profits come from the UK. And did you know that they have more than 17,000 employees ? Yes, a large chunk of costs will be commission (1/3rd of total staff costs), but 17,000 people is a heavy cost base to manage when things are turning down.

Another thing. Savills financial results didn’t seem to have any gearing to the upside when revenues were rising (revenues up  34%, operating profits only up 10% at June 2007 interim results) which means costs (staff costs up 35%) have been rising as fast as revenues. So watch what happens when revenues start falling.

Sources:

Savills H1 results presentation: http://ir.savills.com/savills/finnews/reports/interim07pres/interim07pres.pdf

Google Finance: http://finance.google.com/finance

Digitallook.com: http://www.digitallook.com/

For all articles on Savills published on followthedirectors click here.

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