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 15, 2024

BKG, CTO, FAN | News – CMA probes Barratt-Redrow tie-up; Only 10% of Levelling-up funds spent | Fortnight ahead

Company news

The Berkeley Group Holdings (BKG, 4,677p, £4,962m)

London-focused residential developer and urban regeneration group. Trading update.

Guidance: “Berkeley set out its strategy with its interim results in December, reflecting both the prevailing environment and its uniquely long-term business model focused on brownfield regeneration.  Today, Berkeley reaffirms the associated guidance which is to deliver at least £1.5bn of pre-tax profit across the three years ending 30 April 2026, including pre-tax profit for the current financial year in line with consensus of £550m”. All sales for the current year ending 30 April are secured; more than 70% of sales secured for the next financial year. Sales rates during the period are consistent with the first half of FY 24, around a third lower than the comparative year.  “Enquiry levels are good, with customers looking for the prevailing political and economic uncertainty to recede and interest rates to begin to fall”. Cash due on private forward sales, £2.0bn at the half year, has continued to moderate over the second half “through a combination of strong delivery and the prevailing sales rates. Pricing has been stable across our sites during the period and above business plan levels, while build cost inflation is negligible across most trades”. Net cash at the year-end forecast to be above the half year position of £422m. An interim dividend of 33p per share (£35m) was declared on 29 February.  When combined with the £21m of buy-backs undertaken towards the £283 million annual shareholder return, there is currently £227m due for return by the end of September; on target to deliver this via the residual dividend underpin of 66p pa or share buy-backs, with any balance to be returned in September, accompanied by a share consolidation. FY (Apr) results, 19 June.

TClarke (CTO, 126p, £67m)

Specialist electrical and building services contractor. FY (Dec) results. Rev +15%, £491m; PBT -26%, £7.6m; EPS -30%, 13.8p; divs +10%, 5.9p; net cash, £19.3m (£7.5m).

Trading: “We have seen revenue growth across all of our market sectors in 2023, with the exception of Technologies, where the phasing of our data centre work has seen a number of large projects complete during the year, with the next batch of large projects featuring heavily in our secured work for 2024. Initiated in March 2021, our ambitious journey aimed to double our revenues through organic expansion. In 2023 we successfully achieved these growth plans. During the year we completed an over-subscribed share placing which raised additional net proceeds of £10m. The rationale behind the placing was to increase our working capital levels to support our increased levels of activity and the changing nature of our working capital requirements given the increased size and complexity of current and future projects.

Outlook: Orders +70%, £943m. “The strength of our forward order book is matched by a robust pipeline of current opportunities and a strong balance sheet. The clarity in our strategy, balance across our sectors and a depth of available capabilities have allowed the Board to approve our next medium term growth target of £650m. Within that medium term outlook, we see that our Technologies businesses have continued strong prospects, fuelled by the emergence of AI, driving ongoing growth in data centre markets. At the same time, the advance towards Net Zero is driving the adoption of new alternative energy and smart buildings technologies, transforming needs across our Engineering Services markets. Our continued leadership in London engineering services and our growth in infrastructure and large regional projects adds further confidence. We are poised to maintain our progress in our targeted markets, positioning us favourably to achieve our growth plans for 2024 and beyond”.

Volution Group (FAN, 42 p, £841m)

International designer and manufacturer of energy efficient air quality systems. HY (Jan) results. Rev +6.3%, £173m (+0.9% LFL); adj PBT +9.9%, £35.0m; stat PBT +28%, £29.0m; adj EPS +10.5%, 13.7p; interim div +12%, 2.8p; net debt, £54.2m (HY 23: £55.9m); leverage, 0.7x adj EBITDA (0.8x).

Trading: “Strong performance from UK residential (+19%) and acquisitions offset weaker results in UK OEM and Continental Europe. Further expansion of adjusted operating margin to 22.4% (21.1%), driven by strong pricing discipline and operational excellence initiatives”.

Outlook: “Our strong performance in the first half, together with the tailwind from our three recent acquisitions, gives the Board confidence in delivering adjusted earnings per share for the current financial year slightly ahead of consensus. With our diversified geographic and end-market positioning, and agile business model, along with favourable regulatory trends and the increasing importance of indoor air quality, Volution remains well positioned to continue growing shareholder value into the future”.

In other news …

Barratt-Redrow bid. The Competition and Markets Authority has launched an inquiry into the recommended all-share acquisition of Redrow (RDW) by Barratt Developments (BDEV). The CMA “is considering whether it may be the case that this transaction … may be expected to result in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services”. The competition watchdog has issued a preliminary ‘invitation to comment’ to allow interested parties to submit any initial views on the impact that the transaction. This invitation to comment is the first part of the CMA’s information-gathering process, in advance of the CMA’s formal investigation starting. It may proactively contact companies and organisations that are active in the markets affected by the merger, or have valuable insights or evidence that could assist the CMA’s investigation.

Levelling-up expenditure. Just over 10% of the Government’s promised Levelling Up funds have actually been spent on operational work, In a report published today, the Public Accounts Committee warns that councils have been able to spend just a fraction of the Government’s promised funding. The PAC said barely any of the first funding tranche of 71 ‘shovel-ready’ projects due to be completed this month were on track. Most had reprofiled their spend into 2024-25. The report says that, of £10.5bn in total funding from central government, which must be spent between 2020-21 and 2025-26, so far only £3.7bn has been paid out to local authorities and, of that sum, local authorities have only managed to spend £1.2bn as of September 2023. Dame Meg Hillier MP, Chair of the Committee, said: “The levels of delay that our report finds in one of Government’s flagship policy platforms is absolutely astonishing. The vast majority of Levelling Up projects that were successful in early rounds of funding are now being delivered late, with further delays likely baked in”.

Fortnight ahead

240315 Fortnight
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