Profit and dividend ‘beat’ fuelled by Europe

Severfield has delivered underlying profits and dividend for FY24 ahead of our expectations, along with lower-than-expected net debt, ‘due to strong operational delivery’ despite softer market conditions. The group expects a result for FY25E in line with its expectations. We are slightly ahead of consensus and conservatively trim our adjusted PBT by 4.8%, but introduce forecasts for FY26E with 11% adjusted PBT growth, driven by accelerating demand in the UK and Europe for data centres, battery plants and power.

Profit and dividend ‘beat’ fuelled by Europe

Springfield has entered into a major partnership with Barratt Developments (BDEV) to accelerate the creation of the Scottish housebuilder’s planned ‘village’ of over 3,000 homes near the strategically connected city of Stirling. The sale of the land to Barratt, as part of a new 50:50 strategic collaboration between Springfield and Barratt, will reduce debt by more than its previous guidance and should contribute to planned growth in the medium term.

Village partnership with Barratt speeds growth

Watkin Jones has maintained its FY24E guidance following today’s results for the six months to 31 March, which showed operating profit more than doubling. The group continues to expect a heavy H2 weighting as it has focused on operational performance while the forward-funding market has remained largely on hold, pending further clarity on the direction of interest rates. Sentiment is now gradually improving, according to the group.

Guidance unchanged as investment rekindles

Today’s AGM statement reaffirms Forterra’s FY24E guidance despite a continuation of ‘challenging’ conditions, made worse by record rainfall. The group expects a greater H2 weighting than previously guided, but has seen improved demand for front-end housebuilding materials, including foundations products. This tallies with our belief that housebuilders have re-entered the land market and plan to increase production as early as Q2.

Guidance maintained amid early signs of uplift

Watkin Jones’s guidance for FY24E is unchanged in its trading update for the first half to 31 March. We maintain our forecasts for the full year and introduce half-year estimates, in line with reiterated guidance that performance will be significantly H2 weighted. The group confirms a continuing gradual recovery in appetite among institutional investors to forward fund its build-to-rent (BTR) and student developments. We believe this should gather pace as the direction of interest rates becomes clearer.

H1 in-line amid reviving investor appetite

Severfield’s full-year results to March will be ‘slightly above’ the Board’s expectations, according to today’s trading update, with net debt significantly better. We maintain our PBT estimates for both forecast years, which are ahead of consensus, but reduce our net debt for FY24E. Record orders were boosted by the steel specialist’s European operations, after last year’s Voortman acquisition, while the Indian JV has seen ‘another step up in profitability’. The group has also launched its first share buyback.

Step change in European and Indian outlook

Acquisitions have been an important element of Severfield management’s growth strategy, with the aim of adding new products, sectors and regions to what we have identified as exciting long-term organic opportunities. In this Spotlight report, we focus on the group’s targeted M&A approach, highlighting three significant deals.

Targeted acquisition strategy aids growth path

Forterra’s FY23 (to 31 December) earnings were slightly higher than guidance, which was raised in January, with resilient pricing partly offsetting a steep fall in demand among its main end users, large housebuilders. Our estimates are broadly unchanged, other than reflecting a more conservative stance on the final dividend. Despite a cautious tone in the outlook statement, we believe the largest housebuilders may now rebound more strongly than smaller peers.

Biggest customers poised to bounce back most

Today’s interim results show that Springfield remains on track to meet FY24E expectations for both earnings and, helped by profitable land sales, debt reduction – amid gathering signs of recovery in all three of Springfield’s sectors: private sales, affordable housing and, as Scotland’s rent controls end, private rental. We maintain our FY24E and FY25E estimates but suggest our volume forecasts may be conservative. We believe the Barratt Redrow deal could highlight Springfield’s low valuation.

On track as market recovery builds momentum

Forterra’s FY23E trading update for the 12 months to 31 December guides to adjusted EBITDA ‘slightly ahead’ of its expectations despite brick volumes falling by over a third during the year. We have raised our adjusted PBT and EPS estimates for FY23E and introduced forecasts for FY24E taking our cue from the cautious tone in the outlook statement, which cites uncertainties ahead of a general election. However, we suggest Forterra’s large housebuilding customers could outperform this view.

Profit guidance raised despite sharp sales fall

Watkin Jones’s FY23 results, to 30 September, were closely aligned with guidance in its October trading update, with adjusted loss before tax slightly lower than our estimate and net cash higher. Booming demand continues to push up rents and the forward-funding market is ‘showing early signs of recovery’. The group is maintaining its guidance for FY24E and is seeking to diversify revenue and boost performance in its core markets.

FY results in-line, guidance maintained

Springfield has confirmed in its first-half trading update that it is ‘confident of meeting market expectations’ for profitability and debt reduction for the full year to May. We retain our FY24E PBT estimate and introduce forecasts for FY25E that show 26% growth in adjusted PBT and a further substantial decline in debt. We expect the Group’s recovery prospects will be supported by shortages of housing across all tenures and the major economic stimulus from the newly created Highlands freeport.