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.

November 17, 2022

Homes selling faster, OTMP; ‘I’m an estate agent, get me into there’ (CRST, KIE, KLR, MTO, GRI)

Company News

Crest Nicholson Holdings (CRST, 221p, £568m mkt cap)

South East focused mixed tenure housebuilder. FY (Oct) trading update. Guidance: “FY 22 adj PBT expected to be within previously guided range of £135 – 140m”. Trading: 18 week sales/outlet/week, 0.55 “with weaker trading in recent weeks, reflecting the increased economic uncertainty”.Fwd sales, 11 Nov: -19% Y/Y, 2,038; value -16%, £526m. “Continued expansion of operating margins in line with guidance as the group continues to make good progress with new site acquisitions whilst maintaining discipline on overheads.” YE net cash, £277m (YE 21, £253m); the group ran on a net-cash basis throughout the year. The existing £250m revolving credit facility, which was due to expire in Jun 24, has been replaced with a new sustainability linked RCF which runs until  Oct 2026. It is linked to the group’s sustainability strategy with lower interest paid, based on targets including: reduction in absolute scope 1 and 2 emissions; increasing the number of our suppliers engaging with the Supply Chain Sustainability School; reduction in carbon emissions associated with the use of our homes; increasing trainee positions and on training programmes. Sites added to portfolio in Yorkshire and East Anglia as well as across our existing divisions. Outlook: “We will remain disciplined and selective in acquiring new sites. Given the current macro-economic uncertainty the group has decided to defer the planned opening of a third new division in FY 23 until further notice and will adjust the expected pace of growth across its existing divisions. We remain confident in the long-term fundamentals of the housing market. The strength of our balance sheet underpins this conviction and the delivery of our medium-term growth strategy”.

Kier Group(KIE, 61p, £272m)

Hybrid construction, property and services group. AGM. Guidance: “FY [Jun] 23, has started well and the group is trading in line with the Board’s expectations. We delivered a strong operational performance despite inflationary pressures, which continue to be mitigated. Similar to the prior year, performance is expected to be second-half weighted. The group is on course to generate positive adjusted operating cash flow for FY 23, which will result in a net cash position at the year-end. As with the prior year, the Group expects a seasonal working capital outflow in H1, with a reversal expected in H2”. Trading: Order book at end-Sep, c. £9.8bn (30 June, £9.8bn) and is 90% secured for FY 23. “Long-term framework positions, as well as pipeline opportunities from the Property division are excluded from the order book and represent an additional opportunity. Strong momentum in bidding activity”. Outlook: “Our core markets have remained favourable. We are a strategic supplier to the UK Government and over 90% of our contracts are with the public sector and regulated companies”. The group remains confident in achieving its medium-term targets, including: rev, £4.0 – 4.5bn; adj op margin, c. 3.5%; sustainable net cash position with capacity to invest; div cover c. 3x through the cycle.

Keller Group (KLR, 695p, £506m)

World’s largest ground engineering group, with 60% exposure to North America. FY (Oct) trading update.  Guidance: “The group remains on track to deliver a full year performance in line with management’s expectations, supported by an FX tailwind. The order book remains at a high level, supported by a solid flow of orders including the £45m initial Works Order for the NEOM Project in Saudi Arabia, which is now rapidly gaining momentum. The general performance of the group, robust order intake and, more specifically, the beginning of a performance recovery in our North American foundations business, gives us confidence for the short and medium term”. YE net debt/EBITDA expected to be c. 1.3x, within the target range of 0.5 – 1.5x. Trading: “In North America, trading overall has been as expected with a continued high level of activity. As a result of management actions, the challenges in the foundations business relating to inflation and supply chain issues that impacted profitability in the first half, have begun to reverse. In Europe, trading remains robust, despite the operational challenges generated by the war in Ukraine. The business continues to actively manage the impact of price escalations and shortages of raw materials across the region and in the UK, the HS2 project continues to progress well. AMEA (Asia-Pacific, Middle East and Africa) continues to build on its successful turnaround”. FY results, 7 March.

Mitie Group (MTO, 74p, £1,013m)

UK facilities management group. H1 (Sep) results. Rev +0.6%, £1,923m; adj PBT -20%, £60.6m; stat PBT -12%, £75.3m; adj EPS -27%, 3.6p; interim div +75%, 0.7p; HYE net debt, £64.0m (HYE 22, £8.5m net cash); ave net debt, £62.0m (H1 22, £59.9m). Trading: “New contract wins, acquisitions and price inflation more than offset the boost in the same period last year from short-term Covid-related contracts”. Excluding Covid-related contracts: rev + 16%, “reflecting good momentum across all divisions and effective management of inflationary pressures; u-lying op profit +45%, with 3.4% margin (H1 22, 2.7%), “as margin enhancement initiatives started to deliver”. Winter Support package of £10m introduce to help staff manage the cost-of-living crisis. Outlook: Increased guidance for FY 23 with operating profit before other items now expected to be at least £145m. “Although inflationary pressures will continue into the second half, historically our second half performance is stronger, with increased revenues from projects, seasonal winter work, and the ramp-up of margin enhancement savings coming through as the year unfolds”.

Grainger (GRI, 237p, £1,756m)

UK’s largest listed residential landlord. FY (Sep) results, net rental income +22%, £86.3m; adjusted earnings +12%, £93.5m; EPS +92% (30.9p); div +16%, 5.97p; net debt, £1,262m (£1,042m), LTV, 33.4% (30.4%). Outlook: “With a fully funded, committed pipeline which has construction and finance costs fixed, we have clear visibility over the next four years of future growth and see our strong forecast earnings growth unchanged. Our strong balance sheet, fully funded pipeline and fixed cost debt gives real strength to our capital structure. We have significant flexibility and liquidity in our balance sheet that will enable us to maintain our prudent approach to leverage whatever the macro-economic outlook and will be well placed to take advantage of any opportunities that arise”.

In other news...

Housing market. Residential properties are selling faster as mortgage offers secured before rate rises focus buyers’ minds, according, OnTheMarket (OTMP), Property Industry Eye (link). The latest property index sentiment provided by the property portal shows that buyer determination has filtered through to sellers, with 82% confident they would sell their home within the next three months, up from 79% in September. Approximately 60% of properties were sold subject to contract (SSTC) within 30 days of being advertised for sale in October, the highest level since June, and up on the 53% recorded in September.

Television. A new reality (or realty, in the US) TV show will follow eight estate agent hopefuls competing against each other, closing deals and doing whatever it takes to get sales over the line, to win the grand prize – a job at Robert Irving Burns’s West End office, Property Industry Eye (link). The London based estate agency is starring in the Channel 4 programme, which currently has a working title of ‘Selling Super Prime’, and is due to air early next year. The TV show, which is set to feature a number of celebrities, will go behind closed doors of some of the UK’s most exclusive properties, unlocking the secrets of selling super prime property. Viewpoint: After interior design, sewing and baking, it was only a matter of time before the tiring genre reached Britain’s national obsession with housing. However, it must be better than ‘I’m a Celebrity’, which I watched last night for the first (and last) time …

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