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.

February 9, 2024

BWY, KIE, KINO | Comment – Barratt-Redrow | Fortnight ahead

Company news

Bellway (BWY, 2,810p, £3,356m mkt cap)

Top five UK house housebuilder. HY (Jan) trading update.

Guidance: “We are encouraged by customer enquiry levels and the pick-up in reservation rates in the new calendar year and, supported by our order book, the group is on track to deliver full year volume output of around 7,500 homes [in line with October guidance] (FY 23, 10,945).  If market conditions remain stable and recent reservation rates are sustained throughout the spring selling season, we are well-placed to build the order book through the second half which will serve as a platform for a return to growth from financial year 2025”. Net cash, £77m (£293m).

Trading: HY rev -31%, over £1.25bn “in line with the Board’s expectations”; completions -28%, 4,092; ave selling price -2.4%, £309k. “Trading patterns were less volatile than the comparator period when sharp changes in mortgage interest rates led to significant variations in customer demand.  The improvement in affordability throughout the first half has also led to encouraging levels of customer enquiries in the traditionally quieter winter trading period. Headline pricing has remained firm, with ongoing targeted sales incentives to attract customers and secure reservations.  Build cost inflation has moderated during the period”. Private reservation rate +15%, 105 per week, 0.43 per outlet per week (HY 23, 0.38); Jan private reservation rate, 0.59 (Jan 23, 0.45). Orders -22%, 3,970 homes.

Outlook: “Bellway is building on the recent recovery in customer demand, having opened 34 new outlets in the period, and has plans to open over 40 additional new outlets in the second half of the financial year. We have the financial capacity to invest in land, if supported by market conditions, to drive our recovery and subsequent growth in FY 25 and beyond. Overall, the long-term fundamentals of the UK housebuilding industry remain attractive.  We remain confident that the group’s robust balance sheet and operational strength, combined with the depth of our land bank, will enable Bellway to successfully navigate changing market conditions and to capitalise on future growth opportunities”. FY results, 26 March.

Kier Group (KIE, 128p, £570m)

Hybrid construction, property and services group. Pricing of Senior Notes. £250m in senior notes due 2029, announced on 5 February, have been priced at 9.0% as part of a wider refinancing of the Issuer’s existing committed debt facilities. Kier intends to use the proceeds from the offering to partially prepay certain elements of its existing credit facilities and private placement notes. The notes will be general unsecured senior obligations of the Issuer and will be guaranteed on a senior basis by certain subsidiaries of the Issuer.

Kinovo (KINO, 62p, £39m)

Property services provider, formerly Bilby, specialising in compliance and sustainability. Trading update.

Guidance: “The continuing business continues to perform well with particularly strong margins reflecting the mix of works and continued effects of management’s implementation of the strategic repositioning. Three of the legacy projects relating to Kinovo’s  [discontinued] former construction division, DCB Kent, have concluded. A further four projects have been delayed by extreme weather and unforeseen inherited remedial works and are now expected to be completed by the end of Kinovo’s financial year. The penultimate project is in progress and is expected to complete by the end of May 2024, and the Group remains in discussions with the client regarding the final project, due to complete in 2026. As a result of these delays, the total net costs incurred have increased to £7.1m as at 31 December 2023 including additional procurement, warranty and remedial costs. Kinovo are seeking to recover some of the additional costs incurred through claims and recoveries, but the total pre-tax net cost to complete is therefore expected to be a material increase from the previous estimate of £5.7m. Without accounting for additional works crystalising from Kinovo’s pipeline as the Group enters its peak trading season, revenues for the year ending 31 March 2024 for continuing operations are expected to be approximately £65m (FY 23, £62.7m), reflecting a different revenue mix of projects contracted to date, with electrical services continuing to perform strongly. Adjusted EBITDA is expected to be significantly ahead of last year (£5.5m) and not less than £6.2m, being in line with management expectations. This demonstrates the Board’s continued confidence in the strength and resilience of the continuing business and its significant growth potential. Cash balances will reflect the aforementioned costs incurred and the outcome of any potential recoveries from the DCB projects, supplemented by cash generation from the continuing business”.

Comment

Wednesday’s acquisition of Redrow by Barratt, and the emergence of a five-strong housebuilding ‘Super League’, explored in my latest column for Property Week (paywall):

“No one (including yours truly) saw that coming. Barratt Development’s £2.5bn offer for smaller rival Redrow rekindled almost forgotten memories of housebuilding’s deal-making glory days of the late Noughties. That all ended in tears. Could this time be different?” [Spoiler alert: yes.]

 

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