Property & Construction Daily

The Property & Construction Daily provides a sector-specific comment from leading analyst Alastair Stewart. His daily perspective provides a round-up of market statements, news, economics and views from the property and construction sectors.

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March 13, 2024

BBY, CREI | Economics – Housebuilding drives increase in construction output and GDP

Company news

Balfour Beatty (BBY, 340p, £1,822m)

UK, US and Hong Kong construction and infrastructure group. FY (Dec) results (u-lying unless stated). Rev +7.4%, £9,595m; op margin from earnings-based businesses (excluding investments), 2.6% (FY 22, 2.7%); PBT -10%, £261m “due to improved profitability in UK Construction and higher volumes at Gammon, partially offset by reduced profitability in US Construction”; stat PBT -15%, £244m; EPS -21%, 37.3p; divs +9.6%, 11.5p; YE recourse net cash, £842m (£815m); ave net cash, £700m (£804m); directors’ valuation of investments, £1.2bn (£1.3bn). Non-underlying items, £17m loss (£4m loss), including £12m pre-tax increase to provision recognised in 2021 for stone cladding rectification works in London.

Trading: UK Construction – rev +9.6%, £3,027m; margin, 2.3% (2.1%); op profit +17%, £69m “driven by higher revenue, primarily by higher transport volumes, and improved project delivery”; orders unch, £6.1bn. Support Services – rev +1.7%, £1,006m; op profit -3.6%, £80m. Infrastructure Investments – op profit, £5m (£11m); gains on disposals, £26m (£70m), both sold above directors’ valuations; new investments, £31m, with one new student accommodation project added to the portfolio. US Construction – rev +1.3%, £3,697m; op profit -12%, £51m “as a small number of fixed price civils projects have taken longer than initially scheduled”; orders -7%, £5.6bn. Gammon share of profit, £36m (£32m).

Outlook: Orders -5.2%, £16.5bn. “The Board expects an increase in [op profit] from its earnings-based businesses in 2024, with growth accelerating in 2025. Infrastructure Investments is expected to continue to deliver attractive returns from its recurring income, by divesting assets and making new investments in line with the group’s capital allocation framework. For 2024, gains on investment disposals are expected in the range of £20 – 30m. The longer-term outlook remains positive and growth forecast in 2025 and beyond is driven by the opportunities in the energy, transport and defence sectors in the UK and chosen building sectors in the US”.

Custodian Property Income REIT (CREI, 78p, £344m)

UK commercial real estate investment trust. Update on recommended all-share merger with abrdn Property Income Trust Limited and improvement in management arrangements and fees for the combined group, “reaffirming its belief in the compelling strategic and financial rationale of the recommended merger and that it has agreed with Custodian Capital further amendments to the existing investment management agreement between CREI and its investment manager, Custodian Capital, to the benefit of all shareholders of the combined group”. Details in RNS.

Economic data

Construction output. The volume of construction output is estimated to have increased by 1.1% in January, seasonally-adjusted, following three consecutive monthly falls, the ONS reports. The increase came from rises in both new work (+1.1%) and repair and maintenance (+1.2%). Six out of the nine sub-sectors saw a rise in January: the main volume contributors to the overall monthly increase were private new housing and non-housing repair and maintenance, which increased 2.6% and 1.9%, respectively. On a rolling three-month basis, there was a decrease of 0.9%, with new work falling by 4.5% and R&M rising 4.0%. The Construction data was, along with Services (+0.2%), one of two out of three sectors that contributed to the 0.2% increase in January GDP (in line with consensus expectations) also announced today. Next release, 12 April.

Construction Output
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