CRST, HERC | Economics – Asking prices rise again, Rightmove; Red Sea shipping attacks threaten (some) product prices
Crest Nicholson Holdings (CRST, 217p, £556m mkt cap)
South East focused mixed tenure housebuilder. Guidance: “As announced in the November post-close trading statement, Brightwells Yard, Farnham recorded an incremental cost movement of approximately £11m in the second half of FY23 as the group continued to work on completing certain legacy sites. The group has subsequently conducted a comprehensive review of the costs associated with the work required on this project as well as our other legacy sites. Consequently, further additional costs have been identified which will impact FY [Oct] 23 and the group now expects the adjusted PBT to be £41m for FY 23 [previously £45 – 50m]. In addition, the group expects to recognise an exceptional charge of £13m (which is not cash in FY 23) in respect of a legal claim that it has recently received relating to a low rise apartment scheme built by the group which was damaged by fire in 2021. The group is addressing this claim diligently and efficiently and will provide further details in our preliminary results. This is unrelated to the general fire remediation programme that the Group is currently delivering”. Outlook: “The recent reduction in mortgage rates has provided a more constructive backdrop for house buyers and the wider housing market. Although it is too early to gauge customer behaviour, we have been encouraged by an increase in customer interest levels and inquiries this calendar year”. FY results, 23 January.
Hercules Site Services (HERC, 24p, £15m)
Technology-enabled labour supply company for the UK infrastructure sector. FY (Sep) results. Rev +71%, £84.7m; adj EBITDA +67%, £16.3m; stat PBT, £641k (FY 22, £161k); EPS, 1.27p (0.58p); div nc, 1.12p; net debt £5.8m (£5.3m).
Trading: Labour supply operatives have increased to over 1,000 (750), inc 425 (280) to HS2. New client wins include Balfour Beatty Rail (five-year contract), Galliford Try PSL, Thames and Anglian Water. Post year end, first acquisition completed, Future Build Recruitment, expanding exposure to the white-collar construction market. Construction of Hercules training Academy completed, ready for launch in January 2024.
Outlook: “The Board and the Company’s wider senior management team remain committed to Hercules’ growth strategy and the business has a strong pipeline of projects heading into 2024. Management will continue to pursue a disciplined approach to M&A to help further accelerate growth. The launch of Hercules’ training academy in 2024 will help future-proof the business and expand upskilling opportunities. The cancellation of HS2 (Manchester section) has had no impact to our existing contracts and our outlook for 2024 and beyond continues to look positive. Inflation pressures affected the business in FY 22, particularly pay levels, but in FY 23 the pressures have reduced, and we have continued to demonstrate our ability to regularly renegotiate increased pay levels with our clients”.
House prices. Average new seller asking prices have risen 1.3% M/M to £359,748, in January, the highest increase this month since 2020, though average prices are still 0.7% lower than at this time last year, Rightmove House Price Index. The latest monthly rise follows a 1.9% fall in December. According to the UK’s largest property portal, there has been “tentatively promising” activity in the first week of the year, “markedly stronger” than a year ago: the number of new properties coming onto the market for sale is 15% higher than in the same period last year; buyer demand in the first week of 2024 is also 5% higher than in the same period last year. The number of sales agreed is 20% higher than during the first week of last year; since Christmas, Rightmove has seen nine of its ten busiest days on record for people getting a Mortgage in Principle to see what they can afford to borrow, another early sign of movers getting their 2024 plans in place. The average five-year mortgage rate is now 4.86%, compared to 6.11% at the July 2023 peak. “While there may be more surprises to come, early indicators suggest a more stable year for the mortgage market after its volatility from September 2022 onward”.
Building costs. A rather worrying chart (below) from LinkedIn showing a more than trebling in container costs in a month following the Houthi attacks on shipping, according to Noble Francis, Economics Director at the CPA and Professor of Construction Economics at The Bartlett School of Sustainable Construction, UCL. To avoid attacks on vessels in the Gulf of Aden and the Red Sea, shipping companies are avoiding the Suez Canal route, which handles around 12% of global trade and rerouting vessels around the Cape of Good Hope with delays of around 7-14 days. Almost half of vessels in January have so far been rerouted. According to Prof Francis, “It is still too early to see the effects. Clearly, if disruptions persist, it will significantly affect some imported products through the delayed supply and rises in freight prices. It is worth noting that 76% of products used in UK construction are made in the UK and so are largely unaffected, unless components in machinery used to make the products are affected. From the 24% of construction products that are imported, two-thirds are from EU countries so are also largely unaffected. However, the country that the UK imports the most construction products from is China and imports from Asia will be affected, especially products such as electrics, white goods, lighting, kitchen and bathroom products, ironmongery and plywood. UK construction products prices have been falling recently and in November were 2.3% lower than a year ago so the situation is different to when the Evergiven blocked the Suez canal, which occurred at a time when there were already supply issues. Now, products supply is not an issue. However, construction products prices are still 38.5% higher than in January 2020, pre-pandemic. So, if disruptions persist in the Red Sea, this could lead to supply issues for some products and construction product price rises again, exacerbating problems for house builders and contractors in 2024”.
Prices are as at the previous day’s close. Where quoted, net debt is pre-IFRS16 (excluding leases) unless otherwise stated.
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 PERL and/or our affiliates at the time of publication and PERL does not undertake to provide updates to any opinions or views expressed. PERL does not hold any positions in the securities mentioned in this communication, however, PERL’s directors, officers, employees, contractors and affiliates may hold a position, and/or may perform services or solicit business from, any of the companies or related securities mentioned.
Any prices quoted in our research are as at the previous day’s close.