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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November 16, 2023

CRST, GLE, KIE, GPE | Comment – Is the worst over for the housing market?

Company news

Crest Nicholson Holdings (CRST, 189p, £486m mkt cap)

South East focused mixed tenure housebuilder. FY (Oct) trading update.

Guidance: “FY 23 adjusted PBT expected to be in the range of £45 – 50m”. Previous guidance, 21 Aug, “around £50m”. This includes a £0.5m charge for restructuring activities and additional £7.0m build costs on top of the previously communicated £4.0m for the zero margin Brightwells Yard development in Farnham. Construction activities are now in the final stages as the site approaches its completion. YE net cash, £64.9m (FY 22, £276m).

Trading: 10-weeks to first week of Nov, private sales per outlet per week excluding bulk of 0.39 [0.80 including bulk], “reflecting the continued weakness in the housing market but on an upward trend”. Forward sales -16%, 1,710 units. “Several high quality sites added to the portfolio in the first half with planning approvals underway. Build cost inflation is starting to reduce from mid-single digit percentages and we expect this to continue into FY 24”. Previously communicated decision to cut overheads includes: £3.0m annualised reduction in admin expenses; moderate pace of growth in Yorkshire; newly created East Anglia division incorporated into existing Eastern division; headcount and resources in existing divisions to be aligned with expected level of output in FY 24; land activity “to reduce significantly given high quality additions made earlier this year”; rigorous approach to work-in-progress to align to expected sales rates”.

Outlook: “We expect the housing market will remain challenging as we head into 2024 with elevated interest rates remaining in place until inflation comes back down to its target level. In addition, the absence of any government support for first time buyers, coupled with higher borrowing costs continues to impact affordability. However, there are reasons to be optimistic with year-on-year inflation now halved and real wage growth starting to be felt in households across the UK. We have acquired some excellent sites that are at advanced stages in the planning process, leaving us well positioned to trade in whatever market conditions emerge”. FY results, January.

MJ Gleeson (GLE, 455p, £266m)

Low-cost housebuilder, focused on north of England, and strategic land enabler, focused on south. AGM.

Guidance: “Gleeson Homes has traded in line with the expectations set out in our September announcement. Gleeson Land has completed the sale of one site since the start of the financial year. The Board therefore currently expects that the results for FY [Jun] 24 will be in line with market expectations”.

Trading: Net reservation rates for the nine weeks to 3 November increased to 0.47 per site per week (0.46 excluding bulk reservations), from 0.43 per site per week during the previous nine weeks to 1 September 2023.

Outlook: “Mortgage rates have begun to stabilise and, against a more certain backdrop, we would expect buyer interest to pick up into the seasonally stronger spring selling season”. HY (Dec) trading update, 11 Jan.

Kier Group (KIE, 106p, £473m)

Hybrid construction, property and services group. AGM.

Guidance: “FY [Dec] 24, has started well and the group is trading above the prior period, and in line with the Board’s expectations. Similar to the prior year, performance is expected to be second-half weighted. Given the resilience in trading, order book security and ongoing strengthening of the balance sheet we remain on track to resume dividend payments in FY24, commencing with an interim dividend”. The group continues to de-leverage in-line with its expectations of a significant period-on-period improvement. It anticipates the usual seasonal working capital outflow during the first half which will then reverse in the second half.

Trading: Order book +4.0%, £10.5bn; 91% of targeted FY 24 revenue now secured. Assets of Buckingham Group Contracting acquired from administration on 4 Sep  including its HS2 contract supplying Kier’s HS2 joint venture, and it is now largely integrated into the group’s Transportation business. “We are pleased with the performance delivered to date and are encouraged with the early opportunities now arising”.

Outlook: “We remain well positioned to continue benefiting from UK Government infrastructure spending commitments and we remain focused on the delivery of a sustainable net cash position with capacity to invest, in line with our medium-term value creation plan”.

Great Portland Estates (GPE, 445p, £1,130m)

London office and retail property group. HY (Sep) results. Rev +9.4%, £47.6m; loss before tax, £253m (HY 22, -£87m); EPRA EPS +4.4%, 4.7p; stat loss per share, 100.1p (-34.3p); interim div unch, 4.7p; EPRA TNAV, 650p (794p); net debt, £663m (£606m); EPRA LTV, 28.9% (23.6%).

Trading: 15 new leases signed, £4.3m pa, £121 psf (37, £10.5m, £131); rent review 2, £2.8m, £87 psf (3, £3.2m, £82). Portfolio valuation, £2,303m (31 March, £2,380m), driven by 43 bp increase in yields offset by 1.8% LFL increase in rental values. “With further selective yield expansion a possibility, our investment markets remain relatively quiet, although we are exploiting these conditions to our advantage. We bought three buildings in the period, all off market.”.

Outlook: “The fundamentals in our leasing markets remain healthy. With customers increasingly demanding the very best, sustainable spaces, and discounting the rest, they are competing in a market increasingly starved of new, Grade A supply, putting further upward pressure on prime rents and we have upgraded our rental growth forecasts for the second half. Looking forward, we expect further acquisition opportunities to emerge and we will continue to recycle capital, selling properties to crystallise value”.

In other news …

Comment. The latest batch of company statements and economic data are suggesting the worst for the housing market might be over. My latest column for Property Week (paywall), Was October the turning point?:

“Could we have already witnessed the worst that the much-heralded housing ‘crash’ has had to throw at us? Persimmon chief executive Dean Finch was prepared to stick his neck out this month after half-decent trading in October: “Given where we started the year, we’d have taken this in a heartbeat,” he said. This and a swathe of other market intel continues to confound housing’s prophets of doom.”

Prices are as at the previous day’s close. Where quoted, net debt is pre-IFRS16 (excluding leases) unless otherwise stated.

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