Neil Mackay of Advantage Business Angels publishes a weekly email, and today's provided a particularly pithy view of the Eurozone crisis, which can be accessed by clicking here. This week George Osborne gave an interesting insight into the government's mindset with his intentions to boost the construction industry (click here). I cannot understand why this should be made a key focus since most individuals or businesses able to afford a property already have what they want. I would argue that the first step is to create an environment which results in more people and businesses demanding new infrastructure.
This requires an economy with a larger pool of wealth creating businesses. A couple of examples which illustrate the point are blinkx and Majestic Wine (LON:MJW). blinkx is a spin-out from Autonomy (which was founded in 1996 and acquired by Hewlett Packard last month for £7 billion). Essentially it is using a combination of the burgeoning video market and Autonomy's search technology to enable advertisers to reach consumers globally in a rifle shot manner as opposed to a shotgun approach. It is a company that improves the productivity of its customers. Blinkx (LON:BLNX) listed on AIM in May 2007 at 45p vs today's price of 102.5p, an IRR in excess of 20% pa. By comparison, the AIM index has fallen 40% over the same period. The company looks to have attractive growth potential.
By contrast, Majestic Wine looks to be a well run business but operating in a sector which for me is unappealing because it relies on discretionary expenditure, whilst income available for discretionary expenditure is likely to be shrinking for most people for a number of years. By contrast with blinkx, the Majestic Wine share price in mid-2007 is almost the same as it is today.
If the government wants the construction industry to be busier, it needs to create conditions where more wealth creating companies such as blinkx are being developed. Then there will be more people able to afford to place orders with the construction industry.
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