Focused on cutting debt in uncertain market

Springfield’s FY results to 31 May were in line with its July update guidance, a resilient performance amid challenges, in our view. Following the update, we stated we would review our FY24E estimates in light of guidance at the results. This remains cautious and the Group is now focusing squarely on cutting debt by realising value from its quality landbank. We do, however, believe there could be upside from a revival in affordable housing.

Focused on cutting debt in uncertain market

We are maintaining our forecasts for FY24E and beyond after this morning’s AGM statement from Severfield, which confirms that trading in the first five months has been in line with the group’s expectations, aided by its strong balance sheet. This is despite more challenging conditions in recent months due to building cost inflation, while the long-term outlook continues to be underpinned by new markets, such as datacentres and ‘giga-factories’, and the group’s expansion in the EU and India.

FY outlook on track amid ‘positive’ markets

Forterra’s first-half results to June and FY23E guidance were largely outlined in its 11 July trading update. The outlook for FY24E remains uncertain; but even with no improvement in housebuilding volumes, the group believes profitability could be supported by its own initiatives and a lower overhang of bricks. We suspect, however, that the underlying market could improve.

Resilient H1, scope for ongoing improvements

Watkin Jones has issued new guidance for FY23E, recognising ‘a greater degree of risk’ regarding anticipated forward-funding transactions completing by the 30 September year-end, with lower profitability also expected for FY24E, while it has identified other impairments and charges. We have downgraded our estimates accordingly. Also, CEO Richard Simpson has stepped down and CIO Alex Pease has taken the role on an interim basis.

Transaction risks cloud current outlook

Springfield’s FY23E period-end trading update confirms that profits will be in line with expectations despite challenging UK economic conditions and specific headwinds in the affordable housing and private rental sectors in Scotland. However, the group has cautioned on the near-term outlook in the private sales market. For now, we maintain our FY24E forecasts until greater visibility emerges at the September results on the private market and, possibly, more supportive policy on affordable housing.

‘In-line’ results in face of multiple challenges

Forterra has announced it expects to report ‘resilient’ H1 23E results broadly in line with its expectations despite challenging trading conditions. However, the recent industry-wide fall in brick deliveries and general market uncertainty mean that an anticipated recovery in the second half is likely to be more modest than previously expected. We are cutting our FY23E EBITDA estimate by 20% but believe new efficiency measures will leave the group well positioned to benefit when housebuilding recovers.

Resilient H1 but more gradual recovery in H2

Severfield’s adjusted PBT for the year to 25 March 2023 rose by 20%, beating our estimate by 4.1%, and there was significantly stronger cashflow. For now, we maintain our estimates. However, as discussed in our April note, the Project Horizon digitisation and other initiatives, plus growth potential in Europe and India, suggest upside to our FY25E forecasts. We also argue that greater revenue transparency offers the potential for a re-rating.

FY23 margins and cash beat expectations

Watkin Jones highlights a continued recovery in the institutional funding market in today’s interim results, which were in line with its expectations of a significant H2 weighting for FY23E. This, and attractive new land opportunities, should support its long-run target margins. However, the group has exercised caution in recognising profits on long-term contracts, leading us to cut adjusted PBT by £25m for FY23E, while leaving FY24E unchanged. Longer term, we believe the clamour for rental accommodation and WJG’s unique model should support a return to growth.

Investment appetite returns but rephased

In its 16 May trading update, Forterra confirmed that it has traded in line with its expectations in the first four months of FY23E (to 30 April) despite ‘challenging’ market conditions, and continues to guide to a more H2-weighted result for the year driven by an improving housing market. The update was ahead of yesterday’s opening of its highly efficient Desford brick factory, which, in light of recovering brick industry stock levels, has led the group to temporarily mothball its less-efficient Howley Park plant.

YTD ‘in-line’ as cutting-edge factory is unveiled

Severfield’s new divisional structure and Project Horizon operational improvement programme, outlined at the recent Capital Markets Day, better focuses the UK’s leading construction steel specialist on growth markets, in our view. These initiatives, and the opportunity for further expansion in Europe and India, could imply upside to our FY25E estimates and improved growth beyond that. We also believe that greater revenue transparency could suggest the potential for a re-rating.

Structurally re-engineered to face new horizons

In today’s half-year trading update, residential-for-rent developer and manager Watkin Jones highlights revived activity among its institutional investors following a hiatus last year in the wake of the mini-budget. As previously guided, the group expects a strong second-half weighting as the investment pipeline rebuilds. We continue to believe that WJG uniquely addresses the growing need for new rental homes.

Half-year update highlights investment revival

Severfield, the UK’s leading structural steel specialist, has signalled ahead of today’s Capital Markets Event that a strong second-half performance confirms that FY23 results should be in line with its previous expectations. The acquisition of Dutch fabricator Voortman Steel Construction Holding (VSCH), announced on 15 March, also prompted us to increase estimates for the following two years (see note). Today’s event will include a focus on opportunities in Europe, while the Indian JV continues its profitable growth.