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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September 4, 2023


Company news

Belvoir Group (BLV, 220p, £82m mkt cap)

Franchised lettings-focused property agency group. HY (Jun) results. Rev +3%, £15.9m; PBT +10%, £4.4m; EPS +3%, 9.0p; interim div +25%, 5.0p; net cash £0.4m (H1 22, net debt £2.6m).

Trading: 58% of revenue derived from lettings. Management service fees from franchisees +4%, £5.5m – lettings +8%, £4.5m; house sales -9% £1.0m. Financial services revenue +11%, £8.6m. YTD, 13 (9) existing franchise owners have completed an acquisition of a local competitor under the group’s assisted acquisitions programme.

Outlook: “Within the private rented sector, there is little likelihood of tenant demand receding with higher mortgage rates deterring some would-be homeowners from buying and seeing some homeowners returning to the lettings market. At the same time the supply of rental properties has been tempered in recent years by increased taxation, higher interest rates for buy-to-let mortgages and the prospect of greater regulation, with this latter point being a factor in steering landlords towards using a professional lettings agent. Current pipelines of agreed sales, the level of written mortgage business, ongoing excess demand for rental properties and the incremental revenue from the two recent acquisitions underpin the Board’s confidence in Belvoir’s performance for the second half of the year”.

Grafton Group (GFTU, 865p, £1,826m)

UK, Irish, Dutch builders’ merchant and products group. AGM update. “At the AGM on 5 May, while all resolutions were passed, 21% of shareholders chose not to support resolution 3h which related to the re-election of the Company’s Non-Executive Chair, Michael Roney, as a director. In line with the 2018 UK Corporate Governance Code, the Company engaged in a consultation with shareholders to gain an understanding of their reasons for voting against the re-election. Of the institutional investors who responded, (i) two referred to the Company not having set net zero targets or published Scope 3 greenhouse gas emissions data, (ii) two cited insufficient gender diversity on the board and at senior management level and (iii) two shareholders mentioned the number of Board appointments held by Mr Roney in listed companies. One shareholder expressed the personal view that the Company could and should have a better Chair”. Grafton has pointed out that: it has committed to setting science-based targets by the end of 2024 and is developing a transition plan that shows how these targets will be achieved and is committed to delivering net zero carbon emissions by no later than 2050; three of the Board’s eight directors are women and the Board is committed to achieving the target set by the FTSE Women Leaders Review of having a minimum of 40% by 2025; “the Board believes that Mr Roney has always devoted ample time to his role as Chair and that he effectively discharges the functions and obligations of the role”. “Mr Roney has a distinguished track record in international business, he brings significant experience to the role, provides clear direction and leadership to the Board and makes a major contribution to the strategic development of Grafton”.

Mitie Group (MTO, 98p, £1,312m)

UK facilities management group. Acquisition. Critical environment project designer and principal contractor, JCA Engineering acquired for a maximum cash consideration of £31.5m, comprising an initial payment of £21m and deferred payments of up to £10.5m over three years, linked to performance. Based in Stevenage, JCA has 20 years of experience in delivering complex engineering projects across the UK, specialising in consulting, design, build and maintenance, with a particular focus on critical environments such as data centres, life sciences and healthcare sectors.  The company’s services include mechanical and electrical works, asset upgrades and replacements and office fitouts. JCA also holds design patents for cooling systems in data centres, delivering the highest levels of performance and energy efficiency. The company’s ‘end-to-end’ approach to project delivery, combined with longstanding relationships across the public and private sectors, will enhance Mitie’s growing projects capabilities as a principal contractor to its clients.  JCA will gain access to Mitie’s extensive customer base in our Communities and Central Government & Defence divisions, as well as those in the private sector. For the 12 months ended 31 December 2022, JCA delivered revenue of +17% Y/Y, £71.8m and EBITDA +4%, £5.1m.

Home REIT (HOME, shares suspended)

Real estate investment trust funding the acquisition and creation of properties providing accommodation to the homeless. Monthly update, excerpts. Investment manager AEW has now engaged with 100% of the tenants with a focus on understanding their status and their ability to meet rental demands and is continuing to conduct due diligence on all tenants.  The Company has appointed Vibrant Energy Matters, a subsidiary of Connells Limited, to inspect all 2,473 properties in the portfolio, with target completion by mid-November 2023. The Company has appointed Jones Lang LaSalle as valuer to undertake valuations of the entire portfolio on the bases of market value with target completion by mid-November following completion of all property inspections. As at 31 August 2023, the Company had cash balances of £13.5m including amounts held on account with the Company’s lender and subject to certain restrictions regarding its availability. It has £0.8m of unrestricted cash, this low unrestricted cash balance was expected as it is after the quarterly interest payment was made and before proceeds from the sale of properties are received, which are due early September. On 4 August, the Company exchanged contracts on the sale at auction of 40 properties for £4.8m with completion due early September. Further sales are expected in the near term as part of the strategy to stabilise the financial position of the Company. 100 leases of properties in the One (Housing & Support) CIC portfolio were surrendered, with the Company assuming direct leases with the existing sub-tenant, Mears Limited, to generate £0.9m per annum of rent receipts. A key workstream required to publish the outstanding accounts and restore the Company’s shares to trading is completion of the property valuations and inspections, a process which is underway. The Company does not expect to be in a position to publish its outstanding accounts until late 2023 at the earliest.

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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