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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March 19, 2024

CRST, HWG, WIX | News – ‘£60bn of investment needed for electricity grid’

Company news

Crest Nicholson Holdings (CRST, 224p, £576m)

South East focused mixed tenure housebuilder. AGM (covering trading from 1 Nov).

Guidance: “The group expects FY [Oct] 24 completions to be in the range of 1,800 to 2,000 homes [unchanged since 23 January results guidance], with completions weighted approximately 35/65% in favour of the second half of the year [January, “weighted to H2” without quantifying], reflecting the opening order book and the low level of reservations in the first two months of the financial year. Sales prices are expected to remain stable in FY24 [unchanged]. Net debt at the end of February 2024 is tracking lower than expected as a result of lower build and land spend and this trend is expected to continue in the remainder of the financial year”.

Trading: Reservations “in line with expectations”; open market sales rate, 0.44/site/week, based on 46 outlets, with reduced activity before Christmas and a stronger performance from mid-January.  Sales rate for eight weeks to 15 March, 0.52. “Sale prices have been in line with expectations and cancellations remained at normalised levels. Overall build cost inflation has largely stabilised and at a level lower than prior year. The Group remains focused on improving customer service and since February 2023 has consistently achieved >90% satisfaction rating. The planning system continues to be challenging. Our strong land portfolio with several quality sites acquired last year places us in a favourable position to mitigate planning delays”.

Site issues: “Construction at the Farnham development and other legacy sites which are still being completed is progressing largely as planned. Since the publication of the FY 23 results, the group has become aware of certain build defects predominantly on four sites that were completed prior to 2019 when the group closed its Regeneration and London divisions. These sites will require remediation over the next three years at an estimated cost of up to £15m.  As a result, the Board has decided to appoint third party consultants to provide greater assurance on the adequacy of current provisions around these and other sites completed prior to 2019”. HY results, 13 June.

Harworth Group (HWG, 135p, £436m)

Land regeneration group, including in former coalfields. FY (Dec) results. EPRA net disposal value per share, 205p (197p); stat NAV, £638m (£603m); divs +10%, 1.47p; net debt, £36m (£48m); net LTV, 4.7% (6.6%).

Trading: Industrial & Logistics – “Softer macroeconomic conditions resulted in occupiers becoming more cautious and deals took longer to complete. This translated into more normalised levels of take-up across the market in 2023, following three record years. The lower levels of take-up have resulted in higher vacancy rates. While no region has been completely immune from rising supply, the three regions of the UK that continue to have the tightest supply are the East Midlands, West Midlands and Yorkshire. These are the only regions where there remains less than one year’s worth of supply and are also where the majority of our industrial & logistics sites are located”. Residential – “Reporting from housebuilders suggested a more selective approach to land acquisitions. Despite this, we saw good levels of demand throughout the year from a wide range of housebuilders, both national and regional. This underscores the differentiated nature of our serviced and de-risked land product. The institutional build-to-rent market continued to grow in 2023, demonstrating the defensive nature of the product Only 11% of the built stock is single-family. Rents in the sector continue to grow, but challenges facing consumers highlight the importance of providing affordable products. Our single-family BTR and affordable housing portfolios of sites are particularly well-positioned to address this acute supply imbalance. Greenfield residential land values remain more resilient than those for urban land (which have declined -8.4%), with land values in the North of England and the East Midlands remaining more robust due to a resilient housing market, shortage of sites and stronger competition”.

Outlook: “Macroeconomic conditions look set to improve modestly in the year ahead. However, uncertainty is likely to weigh on sentiment for some time to come. For the industrial & logistics market, the structural drivers of demand remain largely intact and supply in our regions is relatively constrained: in the year ahead we will continue to derisk our development by focusing on pre-let and build-to-suit opportunities and land parcel sales. For residential, while affordability challenges will weigh on house buyer demand for some time yet, the supply of development-ready land will remain constrained, and we are confident that our consented, de-risked serviced land will appeal to a wide range of housebuilders. At the same time, our increasingly diversified range of residential products will provide us with exposure to markets that continue to grow regardless of where the cycle is. As we move into year three of delivering our strategy, we have pump primed the consented capacity of our industrial & logistics portfolio and have a consented pipeline of 6.1m sq ft that will deliver c. £0.8bn of GDV by 2028. We are also exploring other use classes, including the development of data centres and energy assets on our industrial & logistics sites and senior living opportunities on our residential sites. Together these factors will ensure we realise the full potential of our 37.7m sq ft industrial & logistics portfolio, which has an estimated gross development value of c.£5bn, and our 27,190 plot residential pipeline, while delivering for our people, our planet and our communities”.

Wickes Group (WIX, 150p, £376m)

UK DIY retail chain.  FY (Dec) results. Rev -0.6%, £1,554m; adj PBT -21%, £59.5m; adj EPS -37%, 15.1p; divs unch, 10.9p; net cash, £97.5m (FY 23, £99.5m).

Trading: “This has been another year of strong progress. Our robust trading performance, targeted investment programme and disciplined cost control have delivered profits ahead of expectations”. TradePro sales growth +11%, driven by significant expansion in TradePro members to 881k (746k). Record highs for customer satisfaction scores across all channels (stores, Click & Collect and Home Delivery), underpinning market share. Accelerated H2 sales growth of +24% in Wickes Lifestyle Kitchens range since relaunch to gain share of the volume kitchen market. Three new stores opened, in Chelmsford, Widnes and Torquay. New Customer Experience Centre and field service tech platforms driving increased lead conversion, greater efficiencies and 92% net promoter score in Design & Installation. Entry into energy-saving solutions with Solar Fast acquisition, also announced today.

Outlook: “In the first 11 weeks of 2024 Retail sales are in line with last year. As previously noted, the consumer environment for larger purchases continues to be challenging with weaker leads in the market for Design & Installation, resulting in new orders down single digits year on year. We maintain good cost control and have productivity plans in place for 2024, however these will not offset fully the cost headwinds from the scale of increases in National Minimum Wage and business rates; we are comfortable with consensus expectations for adjusted PBT after SaaS impact for FY 24”.

In other news …

Infrastructure. Britain’s power network will need £60bn investment in new offshore wind farms, with heavy investment also required in distribution infrastructure, if it is to hit the Government’s target to decarbonise the electricity system by 2035, according to National Grid, reported in The Times (paywall). The FTSE100 power company is expected to announce today that it intends to connect up to 86 GW of offshore wind by 2035, raising the prospect of hundreds of new pylons and associated equipment. Demand for electricity is set to rise by nearly two thirds over the next decade. To meet the net-zero target, thousands of miles of new cabling will be required to move electricity from the sea and on to homes and businesses. National Grid’s Electricity System Operator division has recommended the creation of an ‘electrical spine’: onshore cables that will move a huge volume of power between Peterhead in Aberdeenshire and Merseyside. Up until now offshore wind farm developers have built individual connections to the shore, creating bottlenecks, resulting in wind farms being paid to turn off turbines.

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