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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November 14, 2023

BILN, GFTU, LAND | Economy – Construction vacancies rise again | News – Housing minister #16

Company news

Billington Holdings (BILN, 317p, £41m mkt cap)

UK structural steel fabrication and construction group. Trading update.

Guidance: “Trading has continued to be strong across the group, with further good quality orders secured and increased volumes being delivered in the second half of the year.  The group continues to benefit from improved manufacturing efficiencies from the deployment of its capital investment programme across all production facilities.  The successful and efficient delivery of high-quality contracts, combined with the increased capacity and positive final determination of contract values has seen the momentum gained during the first half of 2023 continue.  Consequently, the group now expects revenue and profit before tax for the year ending 31 December to be ahead of previous market expectations”.

Outlook: “Going forward into 2024 we have a healthy pipeline of further opportunities, however, we do remain mindful of continuing inflationary pressures and an uncertain macroeconomic outlook, but with our strong balance sheet I do believe the Group is well positioned for the future”.

Grafton Group (GFTU, 784p, £1,621m)

UK, Irish, Dutch builders’ merchant and products group. Trading update, 10 months to Oct: “Grafton continued to deliver a resilient performance in this latest trading period despite slightly softer than anticipated market conditions in September and October. The group remains on track to deliver full year [Dec] operating profit in line with expectations [consensus, £198m; range, £191 – 205m] supported by cost reduction measures implemented earlier this year and ongoing cost discipline”.

Trading: Rev +1.7%, £1.96bn (LFL, -0.8%; H1, Jun, +0.1%; Jul – Oct, -1.5%). LFL rev, Ireland Merchanting -1.7% (-3.4%; +0.8%); UK Merchanting, -2.8% (-2.3%; -3.2%). “Overall demand was more subdued in the four months to the end of October leading to a marginal decline in year-on-year average daily like-for-like revenue with modest price deflation experienced in the Distribution businesses in Ireland and the UK.  Grafton continued to benefit from the breadth of its customer relationships in multiple end-markets and geographic spread of operations with 60% of revenue generated from operations outside the UK in Ireland, the Netherlands and Finland. In Ireland, Chadwicks saw a resumption of growth in average daily like-for-like revenue in the four months to the end of October against the backdrop of firmer demand in the residential RMI and new build markets.  The trading environment in the UK RMI market remained challenging for Selco as discretionary spending on the home continued to be under pressure from high inflation and higher interest rates.  In the Netherlands, revenue growth with key account customers engaged on large commercial construction projects more than offset lower sales to smaller customers and timber factories. In Finland, the slowdown in construction activity reduced demand in IKH. In Retailing, revenue increased in recent months in Woodie’s DIY, Home and Garden business in Ireland following weaker demand for seasonal products at the start of the second half. In Manufacturing, CPI Mortars experienced a decline in volumes as housebuilders reduced housing starts.  Revenue was also lower in StairBox, the bespoke staircase manufacturing business that supplies the RMI market, following a prolonged period of uninterrupted growth”.

Outlook: “Our strong balance sheet and cash generative operations provide us with the resources to develop our businesses organically and to take advantage of acquisition opportunities as they arise. We continue to be actively engaged with potential vendors to build a deeper pool of opportunities in our targeted European markets”.

Land Securities Group (LAND, 605p, £4,506m)

Leading UK commercial property investment, development and management group. HY (Sep) results. EPRA earnings +0.5%, £198m; stat loss before tax, £193m (HY 22, -£192m); EPRA EPS +0.4%, 26.7p; interim div +3.4%, 18.2p; EPRA TNAV, 893p (936p); net debt, £3,572m (£3,348m); LTV, 34.4% (31.7%).

Trading: “In London, our well-located, sustainable offices continue to see growing occupancy, growing utilisation and , growing customer space requirements and hence growing rents. In retail, sales in our locations continue to outperform brands’ overall sales growth, also driving further growth in occupancy and rents. Since early 2022, we have been clear that we expected interest rates to remain higher for longer and that asset values would have to adjust to this new reality, which they have. We were decisive in acting on this view by selling £1.4bn of single-let HQ offices, mostly in the City, at prices ahead of today’s values”.

Outlook: “Since the start of the year, the reduction in inflation, return to real wage growth for consumers and better than expected resilience in UK GDP have been encouraging. Investment activity remains subdued for now but the combination of recent relative stability in long-term rates and greater economic resilience so far means that we expect activity levels to pick up in 2024. for the best assets we expect values will start to stabilise during 2024, although secondary assets where the sustainability of cashflow is questionable will likely continue to fall. From an income perspective, higher interest costs and cost inflation are a headwind, yet the sustainability of our earnings remains underpinned by our long average debt maturity and growth in like-for-like income. For this year, the upside from this is largely offset by our significant disposals last year and the c. £10m impact on earnings from the start-up cost of opening three new Myo locations, the last over-rented retail leases resetting and the investment in our systems we outlined in May. As such, we reiterate our guidance for EPRA EPS this year to be broadly stable vs last year’s underlying level of 50.1p, before returning to growth next year. As our dividend cover is at the high end of our 1.2 – 1.3x target range, we continue to expect our dividend to grow by a low single digit percentage per year over these two years”.

Economic data

Employment. Total vacancies in the construction industry rose to 35,000 in the three months to October, from 34,000 in the quarter to September, according to latest data from the ONS. This is part of the overall employment data set out this morning, which includes: a 33,000 increase in payrolled employees; unchanged unemployment, at 4.2%; and falling growth in regular pay. Viewpoint: Mixed signals: higher vacancies are obviously good for construction workers, but continue pressure on employers; falling wage growth takes pressure off the Bank of England, so good for the direction of mortgage rates and, thus, housebuilding. On employment, the curtailment of future extension of HS2, has not prevented growth in the job numbers on the current phase hitting a record 30,000,

Construction vacancies, seasonally-adjusted (000)

In other news …

Politics. Another reshuffle, another housing minister, number 16 since the Conservatives took office in 2010. This time it’s Lee Rowley, who takes the role for the second time, Building (paywall). He served the housing brief for around seven weeks in 2022 under former prime minister Liz Truss, and also served as construction minister under Boris Johnson, resigning in July last year as part of a mass-walkout of ministers which led to the former prime minister’s downfall. He replaces Rachel Maclean, who was sacked by Rishi Sunak yesterday after just over nine months in the job.

Prices are as at the previous day’s close. Where quoted, net debt is pre-IFRS16 (excluding leases) unless otherwise stated.

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