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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July 27, 2023

Private housebuilding ‘starts’ fall 51% and modular housebuilder ‘forced to dismantle homes’ | FORT, FOXT, HWG, SGRO, HMSO, SFE

Company research

Forterra (FORT, 173p, £367m mkt cap) – FORT is a client of PERL

UK’s second largest brick producer and leading building materials producer. HY (Jun) results. Link to Progressive Equity Research note: Resilient H1, scope for ongoing improvements:

“Forterra’s first-half results to June and FY23E guidance were largely outlined in its 11 July trading update. The outlook for FY24E remains uncertain; but even with no improvement in housebuilding volumes, the group believes profitability could be supported by its own initiatives and a lower overhang of bricks. We suspect, however, that the underlying market could improve.”

Company news

Foxtons Group (FOXT, 38p, £114m)

High profile London estate and lettings agent. HY (Jun) results. Rev +9%, £70.9m; adj op profit +10% £6.8m; stat PBT +42%, £6.1m; adj EPS +56%, 1.4p; interim div unch, 0.2p; net debt, £2.1m (HY 22, net cash £11.6m).

Trading: Lettings – rev +26%, £49.8m, including £5.6m (+14%) of organic growth and £2.7m from acquisitions. “Operational upgrades delivered market share gains and higher average revenue per transaction”.  Sales – rev -19%, £16.9m “due to expected lower exchange volumes, reflecting a lower under-offer pipeline at the start of the year, partly mitigated by market share growth”. Financial Services – rev -12%, £4.2m.

Outlook: “Lettings revenue in July performing in line with H1 23 trends and delivering growth. Sales volumes in July were ahead of the H1 23 run-rate as deals in our under-offer pipeline exchanged. However, new buyer enquiries softened in July in reaction to mortgage rate rises. The operational turnaround is already starting to show results and earnings are underpinned by high levels of recurring revenues. Whilst the near term outlook for the sales market remains challenging, we are making good progress towards our medium-term growth ambitions”.


Harworth Group (HWG, 120p, £387m)

Land regeneration group, including in former coalfields. HY (Jun) trading update.

Guidance: “EPRA NDV at 30 June will be broadly in line with its EPRA NDV as at 31 December. This is the result of positive valuation movements driven by management actions across the portfolio, supported by continued demand from occupiers for industrial & logistics assets and from housebuilders for serviced residential land. These uplifts have broadly offset market-driven outward yield movements in the industrial & logistics sector which, while not as significant as in the second half of 2022, have continued over the first half, reflecting a softer macro-economic backdrop. As of today, the Group has completed, exchanged, or is at heads of terms on 81% of budgeted sales for the year across its industrial & logistics and residential land portfolios, at prices in-line with, or at a premium to, book value”. Net debt, £63.7m (31 Dec, £48.4m); LTV, 9.2% (6.6%). HY results, 12 September.

Segro (SGRO, 786p, £9,626m)

UK’s leading owner and developer of warehouses and industrial space, also active in Europe. HY (Jun) results. Gross rental income +11%, £266m; adj PBT +2.6%, £198m; IFRS loss before tax, £33m (HY 22, PBT £1,375m); adj EPS +1.9%, 15.9p; interim div +7.4%, 8.7p; portfolio value, £18.1bn (Dec, £18.0bn); adj NAV, 937p (966p); net debt, £6,078m (£5,693m); LTV, 34% (32%).

Trading: “Segro has performed well during the first six months of 2023, delivering rental growth from our standing portfolio and from our largely pre-let development programme. We have made great progress in capturing reversion, delivering an average rental uplift of 20% at lease events during the period in addition to contracted indexation, whilst customer retention has increased significantly to 85%. The structural drivers of occupier demand remain evident across the UK and Europe, whilst supply remains constrained in our chosen markets, helping to drive rental growth in line with our expectations. Valuations have been relatively stable in the first half of this year, following the deep valuation correction in the latter part of 2022”.

Outlook: “The increased volume of transactions in the last quarter indicates that investors see value at the current levels of pricing for prime industrial and logistics assets. We have significant opportunities to drive rent and create value both within our standing portfolio and through the execution of our profitable development programme. These factors give us confidence in our ability to deliver attractive growth and returns into the years ahead”.

Hammerson (HMSO, 25p, £1,269m)

UK and European retail property group. HY (Jun) results. Gross rental income -1.0%, £106m; adjusted earnings +15%; IFRS loss, £1.2m (HY 22, profit £50.3m); adj EPS +10%, 1.1p; interim div, 0.72p (0.2p cash, enhanced scrip, 2.0p); net debt, £1,318m (31 Dec, £1,732m); LTV, 43% (47%).

Trading: Footfall +4% Y/Y (UK +2%:; France; Ireland +7%); LFL sales +3%, UK; +7%, France; +2%, Ireland. 134 leasing deals concluded in the period representing £18.3m of headline rent. Net effective rent +8% vs ERV (HY 22, +1%); “strong leasing pipeline for the second half, with a further £15m deals in solicitors’ hands”. Flagship occupancy up +1% Y/Y to 95%.

Outlook: “We have strong leasing and operational momentum and are well placed to deliver another year of robust adjusted earnings and cash flow.  We have maintained our strong operational grip on the business and are on track for both our cost reduction and disposals targets.  Given our progress of the last few years, we are returning to a cash dividend”.

Safestyle UK (SFE, 18p, £25m)

UK manufacturer, recycler and distributor of window, door and roofline PVC products. HY (Jun) trading update.

Guidance: H1 revenue, -5.4%, £74.0m, “in line with our forecasts and reflects the challenging trading conditions of the first half of the year”. Underlying loss before taxation for H1 2023, c. £6.0m. “The Group expects to report The challenging market conditions have worsened over the last five weeks and have adversely impacted order intake volumes which the Board forecasts will be an ongoing trend. Full year performance is now expected to be materially below current market expectations.  The Board continues to forecast an underlying profit before taxation for H2, now expected to be c.£0.5m.  This performance level represents ongoing delivery of monthly profitability established at the end of H1 into H2.  The Board also remains confident that the Group will continue to deliver market share growth for the remainder of the year. Net cash at the end of the year is still expected to be positive. The group also remains fully compliant with its borrowing facility arrangements and the full £7.5m facility continues to be accessible”.

Trading: Efficiency actions equate to a c.£2m annualised saving from levels at the start of 2023. “Although these actions have not been enough to fully counter the volume and margin impact of the trading environment, the Board remains focused on delivering monthly run rate profitability in a challenging market which was achieved at the end of H1”. HY results, 27 September.

Economic data

Housing volumes. The slowdown in the housing market post-mini budget, exacerbated by a rush in H2 22 to put in foundations ahead of Building Regulations changes has resulted in a 51% Y/Y fall in registrations to start new homes in Q2, according to the NHBC. The housebuilding warrantee provider reports a 42% fall in total registrations (related to the more widely followed ONS ‘starts’ but more up to date). The better overall figure was helped by a lower -14% Y/Y reduction in Rental & Affordable. For Private, there had been strong Y/Y increases from Q3 21 – Q3 22, with a proportion that were built only to foundation stage, but qualified as ‘starts’, ahead of more costly regulations on energy efficiency. However, there were increasingly steep Y/Y falls for the latest three quarters (see below).

Building warranty private regs

In other news …

Modular housing. Insurance giant L&G is being forced to dismantle homes built during its loss-making venture into manufacturing modular housing, The construction website understands that problems with foundations have been uncovered at one of its largest modular homes developments in Bristol. The 185-home Bonnington Walk development was one of L&G Modular Homes’ flagship schemes but now dozens of completed homes are having to be entirely dismantled. In May L&G Modular Homes suddenly announced it was halting production at its timber-frame modular housing factory near Selby after amassing heavy losses reported to total around £170m at year-end 2021. On top of heavy losses, modular units produced at the factory have also suffered from severe mould problems after being stored outside under tarpaulin. According to the site, this impacted homes at a scheme in Selby and was a concern in Bristol.

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