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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June 21, 2023

House prices rise in April, but Y/Y rate diminishes – ONS | BKG, HSS |

Company news

The Berkeley Group Holdings (BKG, 3,912p, £4,208m mkt cap)

London-focused residential developer and urban regeneration group. FY (Apr) results. Homes +7.5%, 4,043; prices +0.8%, £608k; rev +8.6%, £2,550m; PBT +9.5%, £604m (in line with guidance); EPS +2.1% (tax 22.9% vs 12.5%), 427p; divs / B-Share returns, 91p (FY 22, 371p); NAV, 3,101p (2,818p); net cash, £410m (269m).

Trading: FY 23 LFL sales reservations -15%; “Sales pricing remains firm and above business plan levels with build cost inflation moderating [to zero]. We are seeing signs of some financial distress in the supply chain”.

Strategy: The manufacture of Berkeley Modular’s first modules for the urban house at Kidbrooke Village is complete with all 96 modules installed on-site.  “Noting the decision of other parties to exit the industry due to the costs and efficiency impact of regulatory and planning uncertainty on a stable production pipeline, Berkeley’s immediate focus is on evolving the product to remove cost, weight and complexity whilst continuing to work with the numerous statutory bodies to achieve the various regulatory approvals required for efficient future delivery.  We will not be putting the factory into full production until this is achieved”.

Outlook: Forward sales sustained at £2.1bn, with the value of reservations for the financial year around 15% lower than the comparative financial year. Guidance reiterated for delivering PBT of at least £1.05bn across FY24 and FY25 combined, “likely to be slightly weighted to the FY 24, in line with market consensus” as well as commitment to £283m (263p per share) pa shareholder returns up to 30 September 2025. Corporation tax rate going to 29%, inc 4% ‘RPDT’ developer tax. “The challenge is increased when set alongside the uncertainty from a continually evolving and increasingly burdensome regulatory environment. While well-intended, this is constraining investment into brownfield regeneration and homebuilding. [We] will continue to be cautious on new investment and sales launches given the volatile operating environment, which includes the current macro-economic, political and regulatory environments”.

Viewpoint: At the results meeting there was a long discourse by CEO Rob Perrins (which he himself described as a “rant”) on the shortcomings of Government (which was driven by “the Shire Counties”) and London Mayoral policies (the authorities’ design guide is “absolutely bonkers”). His views on Labour policies, including the commitment to build 300,000 homes a year sounded much more benign. He is far from being the only housebuilding CEO to express similar views (just less publicly).

HSS Hire Group (HSS, 14p, £97m)

Anglo-Irish tool and equipment hire group. AGM.

Guidance: “The group has continued to see positive trading momentum in the first five months of FY 23 and remains on track to deliver full year adjusted EBITA in line with market expectations”.

Trading: “HSS ProService’s strategy implementation continues to progress well.  Based on the early positive results of these strategic initiatives, overhead investment will be increased to £6.5m in 2023. We are confident that our unique technology-driven proposition and flexible cost-base will enable us to manage any headwinds”.

Economic data

House prices. Average UK house prices (including cash transactions) increased by 3.5% in the 12 months to April, down from 4.1% in March, according to ONS data. The average prices were £286,000 in April, 2.4% below the recent peak in September 2022. Prices increased over the 12 months to £306,000 in England (3.7%), £213,000 in Wales (2.0%), £187,000 in Scotland (2.0%) and £172,000 in Northern Ireland (5.0%). The North East saw the highest annual percentage change of all English regions in the 12 months to April (5.5%), while London saw the lowest (2.4%). On a M/M, non-seasonally adjusted basis, the average UK house price increased by 0.5% in April, following a month-on-month decrease of 0.9% in March 2023. The average UK house price rise in April was driven by rising non-seasonally adjusted house prices in London (2.1%) and the North East (1.8%).

Average annual price changes 2006-2023

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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