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 11, 2024

BOOT, RNWH | Economics – London office construction exceeds 3 million sq ft for third time | News – Conservatives signal revival of Help to Buy

Company news

Henry Boot (BOOT, 207p, £277m mkt cap)

Land Promotion, property investment & development and construction group. Land sale. Land promotion and planning business, Hallam Land Management, has unconditionally exchanged on the sale of a freehold site with planning permission for 75 homes in Ambrosden, Oxfordshire to housebuilder, Mulberry Homes. Hallam acquired the site in 2014, before promoting the land through the planning process, with a planning application strategically submitted in July 2022. Hallam then secured outline planning consent, in December 2023, for a total of 75 homes as well as a 12 acre community woodland. The sale is anticipated to complete H2 2024, resulting in an ungeared internal rate of return of 19% pa. In addition, Hallam retains freehold ownership of an adjacent site totalling 20.6 acres for future promotion through the planning process.

Renew Holdings (RNWH, 1,074p, £850m)

Engineering services group supporting UK infrastructure. Acquisition. Excalon Holdings acquired for a total consideration of up to £26m, allowing Renew to expand into the electricity transmission and distribution market. Excalon, based in Salford, is a leading infrastructure contractor specialising in the provision of high voltage and extra high voltage infrastructure to the UK electricity sector. It has a number of long-term frameworks with electricity distribution network operators across the UK. The initial consideration of £22m has been funded from the group’s existing cash and banking facilities. An additional consideration of up to £2m will become payable in 2025 along with a further £2m in 2026, conditional upon the vendors remaining with the businesses and specific profit targets being achieved. The valuation of the business was based on Excalon generating a sustainable EBITDA of at least £3m pa and the profitability of Excalon is expected to be in line with Renew’s current Engineering Services operating profit margin. The Acquisition will be immediately earnings enhancing.

Outlook: “This acquisition broadens Renew’s exposure to another critical UK infrastructure market, presenting tremendous long-term growth opportunities. It is consistent with our stated strategic objective to expand into new complimentary sectors that have high barriers to entry coupled with resilient attributes”.

Economic data

Office construction starts in Central London, as tracked by Deloitte’s London Office Crane Survey exceeding 4 million sq ft for the third consecutive time. The volume of new starts has dipped by 18% from 5.1 million sq ft to 4.2 million sq ft in the latest six-monthly survey but remains well above the ten-year average. Following three large new starts, the West End takes back the lead from the City as the most active submarket in terms of new construction activity. It is the eighth consecutive survey where refurbishments have outstripped new build, driven by the tightening of Minimum Energy Efficiency Standards signalled by the UK government and rising occupier demand for premium office space (see below). However, “investors are still cautious, particularly on large scale development as the cost of finance continues to hamper viability. We believe that until the long-anticipated rate reductions emerge, the pipeline of large schemes will remain constrained as a result”.

Office construction

In other news …

Politics. Prime Minister Rishi Sunak will today announce a revival of the Conservatives’ now-lapsed Help to Buy scheme to all first time buyers to buy a home with just a 5%, The Times (paywall). The plan, modelled on the Help to Buy scheme that closed last year, will be announced as part of the party’s manifesto launch. According to the paper, the programme could be used for all home purchases of less than £400,000. The previous scheme had a threshold of £250,000 outside London and £450,000 in the capital. The party has also previously indicated it will make permanent the current Stamp Duty exemption for first time buyers buying a property costing up to £425,000.

Viewpoint: There have been no more details in the report, but for the housebuilding industry, the key issue is how this would translate into new housing starts. The Conservatives dropped housebuilding targets, mindful of pressure from the ‘Blue Wall’, while Labour is pointedly sticking to its target for a first term of 1.5 million homes, 40% of them affordable. Let’s see if Sunak reintroduces targets later today …

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