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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February 29, 2024

CRN, CRH, HWDN, HMSO | News – Corporate setbacks in affordable housing and modular homes

Company news

Cairn Homes (CRN, 1.49p, £826m mkt cap)

Leading Irish housebuilder. FY (Dec) results. Completions +14%, 1,741; rev +8.0%, €667m; op margin, 17.0% (FY 22, 16.7%); PBT +6.4%, €99.4m; EPS +10.4%, 12.7c; div +3.3%, 6.3c; TNAV, €753m (€749m); net debt, €148m (€149m).

Trading: Order book +65%, 2,473 homes (+77%, value). “Demand remains exceptionally high as evidenced by our pipeline of closed and forward sales. First three forward fund transactions progressed which will deliver nearly 1,300 much needed Social & Affordable new homes. “These transactions will enable Cairn, as Ireland’s largest self-build apartment developer, to further increase our delivery of apartments”. Commenced first 598 unit Passive House apartment scheme, “which aligns to both our decarbonisation targets and our strategy of delivering the highest quality scaled apartment developments to State supported counterparties”.

Outlook: “Notwithstanding the current interest rate environment, there is a supportive macroeconomic backdrop with strong exchequer surpluses, falling inflation, record and near full employment, strong consumer spending and a growing population. Housing For All continues to target 300,000 new homes in Ireland by 2030, including 90,000 social and 54,000 affordable homes. With this growing level of confidence in our business, 2024 is expected to be another year of continued momentum and significant growth. The company is positioned to grow our business by a further 30% in 2024 and re-confirms our FY24 guidance”: c. 2,200 units; op profit, c. €145 million; ROE of 15%.

CRH (CRH, 6,200p, £ 42,771m)

Irish-European-US building materials producer and distributor. FY (Dec) results. Rev +7%, US$34.9bn; income from continuing operations +14%, US$3.1bn; adj EPS +30%, US$4.65; div +5%, US$1.33; net debt, US$5.4bn (FY 22, US$3.9bn).

Trading: “2023 marked another record year of financial delivery, supported by good underlying demand across our key end-use markets, further pricing progress and the continued benefits of our differentiated, customer-focused strategy”. Americas Materials Solutions, rev +8%; adj EBITDA, +16% “as good commercial management offset the impact of higher input costs”. Americas Building Solutions rev +13%, “led by price improvements as well as contributions from acquisitions”; adj EBITDA +18% “supported by price progression and operational efficiencies along with strong performances from recent acquisitions”. Europe Materials Solutions, rev +4%; adj EBITDA +17%, “from continued pricing progress which more than offset the impact of lower activity levels, with a continued focus on cost management”. Europe Building Solutions, rev -2%; adj EBITDA -17% “as a result of lower activity levels was partially offset by positive pricing and cost savings”.

Outlook: Despite continued inflationary cost pressures during 2023 we expanded our margins and delivered further growth in profits, cash generation and returns. The strength of our balance sheet together with our relentless focus on the efficient allocation of capital enables us to capitalize on the opportunities we see for further growth and value creation in 2024 and beyond”. FY24 guidance: net income, US$3.55 – 3.80bn; adj EBITDA, US$6.55 – 6.85bn.

Howden Joinery Group (HWDN, 773p, £4,239m)

UK’s largest supplier of kitchens and joinery products to trade customers, primarily small local builders. FY (Dec) results. Rev +46%, £2,311m; PBT +26%, £328m; EPS -29%, 46.5p (lower tax rate in the prior year reflected previously announced backdated tax credit); div +1.9%, 21.0p; net cash, £283m (FY 22, £308m).

Trading: “Gross margins were broadly maintained at 60.8% despite higher cost inflation. Operating costs were well controlled at prior year levels, with cost inflation of around £50m more than offset through efficiencies. This protected investment of another £53m in our strategic initiatives. Strategic initiatives included 43 new depots across the Group, 89 depot reformats in the UK, 23 new product ranges, further development of digital and upgrades to manufacturing and supply chain.

Outlook: “Revenue growth in the new financial year has been encouraging and has increased in all the countries in which we operate. We anticipate that market conditions in 2024 will be broadly unchanged and we are well prepared for the challenges and opportunities that this may present. We aim to maintain a profitable balance between margin and volume and we have aligned our operating costs to expected market conditions. Howdens is well placed to continue to outperform its competitors. The group is on track with its outlook for 2024”.

Hammerson (HMSO, 25p, £1,238m)

UK and European retail property group. FY (Dec) results. Gross rental income, -3.3%, £208m; IFRS loss for year, £51m (FY 22, -£164m); adjusted earnings +11%, £116m; adjusted EPS +9.5%, 2.3p; div, 1.5p (2.0p enhanced scrip); EPRA TNAV, 51p (53p); net debt, £1,326m (£1,732m); LTV, 44% (47%).

Trading: Portfolio value, £4,662m (£5,107m). Footfall +3%. 306 deals signed, representing rent +23%, £29m.

Outlook: “Our city centre destinations are in high demand by occupiers and visitors. The importance of a physical presence in a digitally-integrated strategy for best-in-class operators is undeniable.  Over time, we have a unique opportunity to complement our retail core with a broader mix of uses by repurposing existing space and unlocking value on adjacent land. We have a strong platform with long term visibility of income. We remain operationally disciplined and expect further cost reductions in 2024. We are confident in our ability to grow top line and earnings off a new base”.

In other news …

Affordable housing. Former Keepmoat, renamed Equans Regeneration after its acquisition by French contractor Bouygues, has pulled out of bidding for housing association new build work after plunging to a £146m operating loss, blaming cost inflation, supply chain failures, legislative changes and “unsustainably low levels of return” across the industry for its problems,

Modular housing. TopHat, one of the last large scale modular housing manufacturers still in operation, has started a round of redundancies as part of a cost-cutting drive, Around 70 roles are at risk with consultation now underway. The Goldman Sachs-backed business has been trading since 2016 with investors – who also include Aviva and Persimmon – injecting £200m of funding since then. Latest results for TopHat Industries Ltd for the year to October 31 2022 showed pre-tax losses increased to £20.4m from £19.4m as turnover dipped to £10.2m from £12.3m, when the company employed 212 staff. The company said: “TopHat is consulting with employees as part of a programme to reduce the costs of the business in response to the prevailing challenging market. The changes are a prudent step to ensure the business maintains current delivery levels during 2024 and is well positioned for growth as the market returns”.

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