Housing demand still falling but price predictions less negative – RICS |BWY, RDW, GPE |
Bellway (BWY, 2,192p, £2,693m mkt cap)
Top five UK house housebuilder. H1 (Jan) trading update. Guidance: If current reservation rates are sustained through the spring, “the group is on track to deliver full year volume output of around 11,000 homes (FY 22, 11,198).
Trading: Completions unch, 5,695; prices +1.6%; orders -23%, 5,108 homes; net cash, £292m (H1 22, £196m). H1 private reservation rate, 91 homes per week (H1 22, 162) with Q2 -60% Y/Y. “Reflecting the strength of our land bank and a more cautious approach towards land investment, 2,428 plots (H1 22, 8,660) were contracted in the period”.
Outlook: Private reservation rate in January rose to 107 per week (Jan 22, 195). “The reservation rate sequentially improved throughout each week in January 2023, reflecting both a seasonal pick-up, and some easing of affordability pressures, as both wage rises and the recent fall in mortgage rates began to take effect. “While still lower than the start of the prior calendar year, we have been encouraged by visitor numbers at our outlets in January 2023, which were significantly ahead of the levels in the fourth quarter of CY 2022. Website traffic and enquiries have also been strong, providing some grounds for optimism for the spring selling season. Overall, headline pricing across our divisions has remained robust, although in some instances, targeted incentives are being used to secure reservations”.
Redrow (RDW, 545p, £1,771m)
Top 10 UK housebuilder. H1 (Dec) results. Completions -9.6%,2,485; rev -2.0%, £1,031m; op margin, 19.3% (H1 22, 19.5%); PBT -2.5%, £198m; EPS -5.6%, 45.4p; interim div unch, 10.0p; TNAV, £1,917 (£1,953m); net cash, £107m (£242m).
Trading: Economic and political uncertainty led to sales rate of 0.38 private reservations per outlet per week for H1 (0.64). “We reduced our marketing spend and focused on preparing our new year campaign, ensuring the appropriate messaging and incentives to increase both footfall and reservations. This campaign has to date achieved our objective. There has been an encouraging start to the second half with the volume of private reservations per outlet per week for the 5 weeks to 5 February of 0.51”. The first large housebuilder to begin selling homes with air source heat pumps as standard. Underfloor heating will also be provided as standard on the ground floor in detached homes.
Outlook: FY 23 guidance: rev, £2.1bn (from £2.05bn previously); op margin, 18.0 – 18.5% (18.0%); EPS 84p (na); FY div, 28p). “Whilst 2023 will be a challenging year as the market resets, early indications are better than anticipated and the market appears to be finding a new, natural level”.
Viewpoint: Both today’s announcements maintain the ‘cautiously less pessimistic’ tone of Barratt’s yesterday, with increased interest from potential buyers (although this may take longer than usual to convert to sales) and robust headline prices, albeit with incentives c. 5 – 6% of selling prices, up from the long-term norm of 2 – 3%. Meanwhile, estate agents are forecasting lower price falls than previously (see below).
Great Portland Estates (GPE, 593p, £1,513m)
London office and retail property group. Sale completed of 50 Finsbury Square, EC2, GPE’s first net zero carbon development. Construction of the 129,200 sq ft building completed in January, with the leases to Inmarsat Global Limited, and various smaller retailers, commencing shortly thereafter. With the lettings concluded, the sale to a wholly owned subsidiary of Wirtgen Invest Holding, a private German family office has also completed. The headline price of £190m reflects a topped up net initial yield of 3.85% and capital value of £1,471 per sq ft (£1,690 per sq ft on expiry of rent frees).
Housing market. New buyer demand, sales, fresh listings and prices all continued their downward trend in January, but with a lower forecast of price falls for the year ahead, according to the latest RICS Residential Market Survey. The net balance for new buyer enquiries fell to -47%, down from -40% in December, signalling an accelerating decline in demand, with the January marking the ninth successive negative monthly reading. Moreover, contributors in all parts of the UK saw either a fall in demand or a stagnant trend over the latest survey period. Supply tightened further, with a net balance of -14% of agents surveyed reporting a decline in new instructions during the month.
Viewpoint: The downwards trajectory of the headline house price chart (below left, separated into London and the rest of the country) definitely looks precipitous. But this ‘balance’ is based purely on the number agents who are seeing rises (almost none, other than in Scotland and Northern Ireland) minus those seeing falls (almost all). But the less commonly viewed charts towards the back of the report suggest that, although almost are have seen falls, they have actually been little over 2% in monetary terms for the bulk of agents. Looking forward 12 months, they are now forecasting less of a price decline (below, right – my highlighting): about -2%, down from the previous estimate at just over -2.5% (possibly as much due to the tight supply than lower spending power). There has also been an uptick in the five year outlook to about +3% pa.
NB Prices are as at the previous day’s close.
This communication is provided for information purposes only, and is not a solicitation or inducement to buy, sell, subscribe, or underwrite securities or units. Investors should seek advice from an Independent Financial Adviser or regulated stockbroker before making any investment decisions. Progressive Equity Research Ltd (“PERL”) does not make investment recommendations. Opinions contained in this communication represent those of the research department of PERL at the time of publication. PERL does not undertake to provide updates to any opinions or views expressed in this document. PERL does not hold any positions in the securities mentioned in this email. However, PERL’s directors, officers, employees and contractors may have a position in, and PERL or its affiliates may perform services or solicit business from, any of the companies or related securities mentioned in this document.