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 25, 2024

BOOT, KGF, HLCL | News – L&G ‘lines up sale of housebuilder Cala’ | Fortnight ahead

Company news

Henry Boot (BOOT, 184p, £247m)

Land Promotion, property investment & development and construction group. FY (Dec) results. Rev +5%, £359m; u-lying PBT (excluding revaluation movements) -35%, £36.7m; stat PBT -18%, £37.3m; EPS -21%, 19.7p; divs +10%, 7.3p; NAV +3.7%, 306p; net debt, £77.8m (FY 22, £48.6m); gearing, 19.0% (12.3%).

Trading: Land promotion division – 1,944 plots sold (2022: 3,869) at an increased gross profit per plot of £15,480 (2022: £6,066) due to significant freehold sale at Tonbridge, more than offsetting the volume reduction. Total land bank, 100,972 plots (95,704 plots). “Since the start of 2024 Halland Land Management has already disposed of 276 plots and exchanged on a further 793 plots for completion across 2024-2026 and an additional 1,556 plots under offer “showing our main customers, the national housebuilders, are still acquiring prime strategic sites”. Property investment & development – GDV (group share) of completed schemes £111m, dominated by prime industrial development which was all successfully pre-let and/or pre-sold during year. Committed development programme, £159m, with 50% pre-sold or pre-let, including c.550,000 sq ft of Industrial & Logistics development underway (group share, £91m GDV). £1.3bn (group share), 59% of which is focused on industrial & logistics. Market value of investment portfolio including share of JVs, £113m (£109m) and continued to outperform the CBRE UK monthly index, with total return of 6.7% for FY23. Four accretive investment property sales, plus Banner Cross Hall, for a combined value of £12.7m, at an average 23% premium to December 2022 valuations. Stonebridge Homes completions +43%, 251 homes “at prices slightly ahead of budget”; owned and controlled land bank, 1,513 plots (1,094) “as the business continues scaling up in line with its growth aspirations”. Construction – Rev -23%, £99.5m “in a challenging market”; op profit -46%, £6.5m. “Performance on two of our largest projects, both are in the centre of Sheffield, the build-to-rent (BTR) Kangaroo Works Heart of the City mixed use scheme, were hit by the availability of materials and suffered delays”.

Outlook: “It feels the economy has turned a corner. This is very likely to move us on from the shallow recession we faced at the end of 2023 into a recovering economy. This is encouraging for our rate sensitive markets. The demand for houses and residential land should pick up. Lower rates will also stimulate investor interest in commercial property and BTR. All of this in turn boosts construction activity. However, planning uncertainties and delays will continue to be a problem and we also face the uncertainty of a general election. We do not have clear visibility on how all of this will unfold and, with key transactions to execute and complete this year in both land promotion and development, we expect 2024 results will be heavily second half weighted. We have confidence in the long-term fundamentals of our key markets, with growing conviction that our concentration on prime, high quality buildings and projects together with our focus on developments with strong ESG credentials will reward us with improved liquidity and enhanced returns. Our balance sheet remains rock solid and we have the resources to continue to grow the business in line with our medium term targets”.

Kingfisher (KGF, 234p, £4,370m)

Owner of home improvement stores across France and Europe, including B&Q in UK. FY (Jan) results. Rev -0.6%, £12,980m (-3.1% LFL); adj PBT -25%, £568m; stat PBT -22%, £475m; adj EPS -26%, 21.9p; net debt, £2,116m (£2,274m).

Trading: “Positive UK & Ireland sales, alongside consistent market share gains. France and Poland sales impacted by more challenging consumer backdrop”. UK & Ireland rev +0.8% LFL. “Positive performance, supported by resilient e-commerce and trade customer sales, with market share gains at B&Q, TradePoint and Screwfix”.

Outlook: “Q1 25 LFL sales to date, -2.3%; “Improved sales trend in the UK & Ireland, France and Poland, compared to Q4 23/24. We expect repairs, maintenance and renovation on existing homes to provide resilience, but are cautious on overall market outlook given lag between housing demand & home improvement demand”. FY 25 guidance, adj PBT, c. £490 – 550m. ”Strongly positioned for growth in 2025 and beyond”.

Helical (HLCL, 206p, £250m)

Commercial real estate investor, focused on London and Manchester offices. Property sale. contracts on the sale of the long leasehold interest in 25 Charterhouse Square, London, EC1 to a real estate fund managed by global alternative investment manager, Ares Management, for £43.5m, a 6.5% discount to the 30 September book value. Redeveloped by Helical in 2017, the six-storey building provides 45,000 sq ft of modern office space and is home to a range of creative occupiers. The building is accredited BREEAM Excellent, WiredScore Gold and offers comprehensive end of cycling facilities. “25 Charterhouse Square is a great example of how Helical is delivering modern, attractive workplaces while staying true to its sustainability aims. We will look to recycle the proceeds from the sale into our development pipeline, which is focussed on delivering ‘best-in-class’ Central London office schemes”.

In other news …

Legal & General (L&G) has lined up Rothschild to oversee a sale of Cala Group, one of Britain’s biggest housebuilders likely to be valued at up to £750m, Sky News. Last May, L&G halted modular homes production. The company said this was due to planning delays and ongoing economic headwinds, while the factory was reported to be making losses of £174m. Last month, L&G sought to deny any intention to sell the business, which it took full control of in 2018. Cala has a long-term goal to build 3,000 homes annually, potentially placing it among the top 10 UK housebuilders. L&G was contacted for comment.

Fortnight ahead

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