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 7, 2024

BWY, TPFG | Economics – House prices wobble in May, on upwards trend, Halifax; Rental growth slows, Zoopla; Construction activity hits two-year high | News – Labour to keep low deposit mortgage scheme | Fortnight ahead

Company news

Bellway (BWY, 2,782p, £3,310m mkt cap)

Top five UK house housebuilder. Trading update, 1 Feb – 2 Jun.

Guidance: “The group is on track to deliver full year [Jul] volume output of around 7,500 homes (FY 23, 10,945) and we continue to expect a reduction in the underlying operating margin of at least 600 basis points from the level in the prior year (16.0%). The overall average selling price is now expected to be around £305,000 (£310,306).  The increase from our previous guidance of £295,000 is mainly due to changes in product mix, including a contribution from some relatively high value private completions in the final quarter of the current financial year”. Net debt at 2 Jun, £57m (net cash, £42), “reflecting the delivery profile of completions and normal working capital requirements The Board continues to expect to end the financial year with low adjusted gearing6 (31 July, 4.0%). The Board continues to expect underlying dividend cover for the full financial year will be around 2.5x.

Trading: “Trading through the spring selling season has been robust, with a sustained improvement in private reservations”. Private reservation rate +6.9%, 0.62 per outlet per week, from a higher number of outlets, which averaged 245 in the period (239). “Overall, headline pricing has remained firm, and incentives continue to be used on a targeted basis”. Forward orders, 5,346 homes (4,411, 1 Aug; 4 Jun 2023, 6,172 [distorted by approaching change in Building Regulations]). Land – “Reflecting the backdrop of falling consumer price inflation and the improving outlook in terms of both lower interest rates and house price stability, we have been more active in the shorter-term land market since the start of calendar year 2024”.

Outlook: “The Group is now fully sold for the current financial year and given our strong outlet opening programme and healthy forward order book, Bellway is well-positioned to return to growth in FY 25. We have a strong outlet opening programme and a healthy forward order book and work-in-progress position and, if market conditions remain stable, we are well-positioned to return to growth in FY25. We remain alert to future potential risks to customer demand and cost inflation, and in the coming weeks there may be a temporary impact to trading as political campaigning continues.  Notwithstanding this, the outlook is improving and there is cross-party political support for increasing the supply of housing across the country.  The long-term housing market fundamentals remain positive, and we are hopeful these will be bolstered by greater clarity over planning and housing policy beyond the upcoming General Election. The Board is confident that, given the strength of the land bank and balance sheet, Bellway is very well-placed to deliver continued volume growth into the longer term to support ongoing value creation for shareholders”. FY (Jul) trading statement, 9 Aug.

Viewpoint: The confirmation that the group has been more active in the short-term land market confirms the assertion in the ‘Daily’ over the past three months or so that the major housebuilders have suddenly returned to the land market after hunkering down for over a year. This suggests housebuilding starts will pick up markedly in the months ahead.

The Property Franchise Group (TPFG, 443p, £276m)

Franchised lettings and estate agent group, enlarged through the recent acquisition of Belvoir Group, also operating hybrid web-based EweMove platform. AGM.

Guidance: “The first five months of FY 24 have been transformational, with the completion of two significant transactions: the merger with Belvoir Group completed in March and the acquisition of The Guild of Property Professionals and Fine & Country completed last week. As reported at the results in April, FY 24 started with good momentum and that has continued to build. Our longstanding businesses have traded in line with our growth objectives. Notably, lettings revenues have continued to grow at similar rates to last year and the sales-agreed pipeline at 30 April was 20% up on the same period in FY23, signalling a much stronger sales market so far in FY24. We are cognisant of the pending General Election which may impact the sales market’s recovery over the summer as well as some broader headwinds. Notwithstanding, we are confident of driving our organic growth, delivering the expected synergies from our recent acquisitions and developing new additional revenue streams. For these reasons, the Board looks to the future with confidence and excitement about the further value we can deliver for all stakeholders from our increased scale and ongoing ambition”.

 

Economic data

House prices slipped by 0.1% M/M to £288.7k in May but the Y/Y rate increased to +1.5%, from +1.1% in the year to April, according to the latest Halifax House Price Index. The North West is the strongest performing nation or region, +3.8%Y/Y. Northern Ireland, +3.2% in May; Scotland, +1.9%; Wales +0.7%. Eastern England recorded the largest decline, -0.8%. London, the most expensive region at £536.8, +0.2%. “Market activity remained resilient throughout the spring months, supported by strong nominal wage growth and some evidence of an improvement in confidence about the economic outlook … Set against a backdrop of a limited supply of available properties, the market is unlikely to see huge fluctuations in the near term”.

Rental market. Y/Y rental inflation slowed to +6.6% in May, from +10% a year ago, and the lowest growth rate for 30 months, according to the UK Rental Market Report from Zoopla, part of Houseful. Rental demand is down 25% but still greater than twice the pre-pandemic level. Meanwhile the supply of homes for rent is up 18% but still a third below pre-pandemic levels. The biggest rises were North East (+9.5%); Scotland (+9.3%) and North West (+8.4%). London was the slowest (+3.7%), “while there is headroom for rental growth in most affordable areas”.

Construction market. Industry activity rose at the highest pace for two years in May, with “firms gearing up for further growth in the months ahead, posting renewed expansions in both employment and purchasing activity as workloads increase, S&P Global reports in its latest Construction PMI report (from yesterday). The headline seasonally-adjusted UK Construction Purchasing Managers’ Index, recording levels of work undertaken, remained above the 50.0 no-change mark for the third consecutive month rose to 54.7 from 53.0 in April. For the first time since May 2022, all three monitored categories saw activity increase during the month as housing activity returned to growth. The expansion in activity on residential projects was only marginal. The sharpest increase in activity was in the commercial work, where the rate of growth accelerated to a two-year high. Meanwhile, civil engineering activity rose at a solid, but slightly softer pace. New orders rose for the fourth consecutive month, partly reflecting the commencement of previously delayed projects.

In other news …

Politics. Labour says it plans help more than 80,000 young people get on to the housing ladder over the next five years, promising to make permanent a current government scheme designed to ensure low-deposit mortgages are available for first-time buyers, BBC. The mortgage guarantee scheme was introduced by the Conservatives in 2021, when Rishi Sunak was Chancellor, and was extended until July next year by his successor, Jeremy Hunt. Sir Keir Starmer said he wanted to “turn the dream of owning a home into a reality”. According to the ONS, external, some 40% of 16.5 million people aged 15 – 34 were living with their parents in 2022 – about 6.7 million people. The existing scheme allows lenders to purchase a guarantee on part of mortgages, allow them “to increase the appetite of mortgage lenders for high loan-to-value lending” – so buyers face paying smaller deposits for their mortgage.

Fortnight ahead

07 June 24 Fortnight ahead
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