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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May 18, 2023

Water companies pledge £10bn to upgrades | FORT, VTY, BLV, GRI, NEXS, MBH, BREE, GEN, SDY, SFE, PURP |

Company research

Forterra (FORT, 186p, £395m mkt cap) – FORT is a client of PERL

UK’s second largest brick producer and leading building materials producer. Link to Progressive Equity Research note, on this week’s trading update and plant visit, YTD ‘in-line’ as cutting-edge factory is unveiled:

“In its 16 May trading update, Forterra confirmed that it has traded in line with its expectations in the first four months of FY23E (to 30 April) despite ‘challenging’ market conditions, and continues to guide to a more H2-weighted result for the year driven by an improving housing market. The update was ahead of yesterday’s opening of its highly efficient Desford brick factory, which, in light of recovering brick industry stock levels, has led the group to temporarily mothball its less-efficient Howley Park plant.” 

Company news

Vistry Group (VTY, 814p, £2,814m mkt cap)

Formed from the mergers of Bovis Homes and housebuilding and partnerships divisions of Galliford Try (GFRD) and Countryside Partnerships. AGM.

Guidance: “The resilience of Partnerships is reflected in its strong forward order book which provides us with confidence that the business will deliver revenue growth in FY23 against proforma FY 22. Housebuilding is seeing high, sustained levels of interest and an improving trend on private sales rates. Reflecting the strength of the forward order book and progress on integration, the Group now expects to deliver adjusted profit before tax for FY23 in excess of £450m [March guidance, “in excess of £440m].

Trading: Private sales rate (1 Jan to date), 0.83 per site per week and 0.65 excluding bulk sales (first 11 weeks of year to Dec, 0.54; weeks 8 – 11, 0.62). Private forward orders, £699m (-23% Y/Y; +11% vs 20 Mar); Affordable, £482m (+8%; -8%). “Open market pricing has remained resilient, supported by the use of incentives particularly targeted at first time buyers. Partnerships has secured a number of exciting development opportunities in the year to date, all of which meet our hurdles of at least 50% of homes pre-sold and 40% ROCE.  In particular, we have been selected by The Guinness Partnership to form a 50/50 joint venture to deliver Phase 2 at Signal Park, a major redevelopment in Tolworth with a gross development value of £400m and the delivery of 700 much needed mixed-tenure homes”.

Outlook: “With excellent progress made on integration, our enlarged Partnerships business is well positioned to meet the strong demand for mixed tenure housing across the country.  The resilience of Partnerships is reflected in its strong forward order book which provides us with confidence that the business will deliver revenue growth in FY 23 against proforma FY 22”.

Belvoir Group (BLV, 204p, £76m)

Franchised lettings agency group. AGM.

Guidance: “Trading to date is in line with management’s expectations for the year to 31 December.

Trading: “The group’s performance continues to be very resilient despite the uncertainty in the housing market created by the mini budget in Q4 2022 and subsequent increases in interest rates. Growth in our recurring lettings income is benefiting from ongoing high levels of tenant demand with rents on new tenancies increasing by 9.9%. Meanwhile, our assisted acquisitions strategy has seen our franchisees acquire both lettings portfolios and estate agency businesses. In 2023 to date, the Group has supported eight franchisees to acquire a local competitor with combined historic turnover of £2.4m and adding over 1,000 managed properties to the group”. YTD Management Service Fees (MSF) + 5% Y/Y. Lettings MSF +7%; Sales MSF – 4% lower. Gross profit from the financial services division in the first four months of 2023 increased by 8% with growth of 20% attributable to The TIME Group, acquired May 2022, more than compensating for a fall of 12%, as forecast, in the underlying financial services business. Outlook: “A degree of stability has returned to the mortgage market following the paralysis in the immediate aftermath of the mini budget. The lag in the home buying process means that the impact of the mini budget on market sentiment is still being felt given the reduction in vendor instructions and a lower level of homes available to buy during the first quarter of 2023. However, there are signs that the fall in demand for property triggered last Autumn might be bottoming out. Mortgage approvals rose in both February and March, and recent indices suggest that house prices are stabilizing will improve buyer confidence as the market enters its crucial Spring/Summer season”.

Grainger (GRI, 255p, £1,892m)

UK’s largest listed residential landlord. Statement re Rent Reform Bill. “We welcome today’s Rent Reform Bill and its principal aim of improving and raising standards within the UK private rental market. Many of the proposals in the Bill align to Grainger’s business model. Earlier this week in Parliament, the Housing Minister stated that these reforms are intended to ‘support a buoyant private rented sector and continued investment, including from institutional investors’. Today’s Bill ensures that rents can still be set in line with the open market. The Housing Minister has specifically stated that ‘Nothing in these proposals will prevent landlords being able to increase rents to market prices’. The abolition of ‘no fault’ evictions is welcome alongside the commitment to court reform and strengthening landlord’s ability to swiftly manage problem tenants for the benefit of the wider community. A key focus for Grainger is retaining our customers, which these proposals align with. We look forward to continuing to work with the Government and policy makers from all parties, to ensure today’s proposals strike the right balance between improving the experience for renters, while maintaining the attractiveness of the sector to long-term, responsible investors like Grainger”.

Nexus Infrastructure (NEXS, 167p, £15m)

Provider of civil engineering infrastructure services to UK housebuilders through its operational business, Tamdown (having sold its TriConnex and eSmart Services infrastructure and utilities services businesses). HY (Mar) results. Continuing operations: rev +8.8%, £50.8m; op margin, 2.6% (HY 22, 2.4%); u-lying PBT, £0.0m (HY 22, loss before tax £0.4m); FY 23 stat PBT, £72.3m, following gain on disposal; interim div, 1.0p (0.1p); net cash, £15.9m (£1.3m).

Trading: Orders -3.5%, £85.3m. Outlook: “In recent weeks, we have noted early indications of improvements in market conditions. A number of housebuilders have commented on an increase in enquiries and sales conversions. Whilst this is encouraging, it is likely to take some months to be fully reflected within Tamdown. Despite ongoing cost inflation across the industry, the group is committed to taking the necessary mitigating actions to protect and improve margins going forward, including; contract selection, flexibility in our plant and labour cost base, and discipline in pricing of works”.

Michelmersh Brick Holdings (MBH, 93p, £88m)

UK’s fourth largest brick manufacturer by volume; Belgian operation acquired in February 2019. AGM.

Guidance: “The group has made a robust start to 2023, and combined with our balanced forward order book, we remain on track to meet full-year [Dec] expectations”.

Trading: “Since reporting our full-year 2022 results in March, we have continued to add to our quality forward order book with resilient order intake for our broad product portfolio from our loyal customer base and distributor relationships across our end markets, whilst production volumes have continued in line with expectations. Wider demand across the construction industry has been impacted by the higher interest rate environment and we are focused on appropriate portfolio pricing to maintain an end market spread in our forward order book drawn from social and specification housing, RMI, new build and commercial sectors”.

Breedon Group (BREE, 357p, £1,210m)

UK and Ireland aggregates group. Completion of three recent bolt-on transactions with a combined enterprise value of up to c. £19m: Robinson Quarry Masters, a quarrying and concrete block business in Country Antrim; Broome Bros., a leading manufacturer of concrete blocks based in Doncaster; and Minster Surfacing a regional surfacing business based in Lincoln.

Genuit Group (GEN, 298p, £743m)

Manufacturer of sustainable water, climate and ventilation products for the built environment, formerly Polypipe. AGM.

Guidance: “FY 23 operating profit expected to be slightly ahead of current consensus for the year”.

Trading: Rev (four months to 30 Apr) -3.8%, £201m, -4.5% LFL, “in line with our expectations … reflecting a market-driven year-on-year volume decline of c. 11% offset by the focus on managing inflationary pressures through pricing”. Sustainable Building Solutions (c. 41% of group revenue), -8.5% Y/Y; Water Management Solutions (29%), -5.1%; Water Management Solutions (29%), +7.4%. The Group has taken a number of actions during the period to simplify the business and address its cost base to drive margin improvement.

Speedy Hire (SDY, 32p, £148m)

UK and Ireland tool, equipment and plant hire services provider. Completion of the investigation into non-itemised assets, first notified to the market in its 8 February trading update and further referenced in its year end trading update on 5 April. “As previously announced, following a comprehensive count of all hire equipment in preparation for the audit for the financial year ended 31 March 2023, the Company identified a deficiency in the value of non-itemised assets (equipment without a unique serial identifier such as scaffolding tower, fencing and non-mechanical plant) of c. £20m. Following completion of the investigation the Board has concluded that:  the issue resulted from problems with the company’s controls and accounting procedures for non-itemised assets over a number of years, and in particular the reconciliation of such counts to the group’s fixed asset register; and the issue was not the result of underlying systemic fraud perpetrated on the company by its staff or third parties. The Board has agreed a remedial plan to further strengthen the financial control environment for managing non-itemised assets and provide assurance for the relevant accounting values. As previously announced, the asset count at the end of March 2023 did not identify the need to increase the existing provision”.

Safestyle UK (SFE, 22p, £31m)

UK manufacturer, recycler and distributor of window, door and roofline PVC products. AGM.

Guidance: “The group is on track with its programme to reduce its cost base and improve margins.  The Board expects these will positively impact the underlying performance of the business as the year progresses and consequently, guidance for the full year remains unchanged”.

Trading: “Our trading has remained in line with recently revised expectations outlined at our final results in March.  We have maintained the price increases enacted late last year to mitigate input cost inflation.  Recently, we have slowed the rate of further price progression as input cost increases have begun to moderate and we are actively managing the balance between lead conversion/volume and price progression”. TV and radio campaign carried out in February and March and “we have seen further increases in our brand awareness which we are confident will underpin our growth aspirations for the medium-term”.

Purplebricks Group (PURP, 0.74p, £2.3m)

Hybrid on-line estate agent, supported by local property agents. Proposed sale of business and assets to Strike (announced yesterday after the Daily ‘went to press’). Entry into a conditional agreement to effect the transfer of substantially all of the group’s trading business and assets to Strike (other than certain excluded assets) for a consideration of £1 and the assumption of substantially all of the Company’s liabilities (other than the excluded liabilities) by the purchaser. The Proposed Sale results in the Company’s cash balance on completion (up to a maximum of £5.5m) being retained by the Company with the intention that the net cash proceeds after the deduction of certain costs and expenses to meet the excluded liabilities are distributed to shareholders. “After a period of engagement with a significant number of potential offerors and upon conclusion of several rounds of bidding the Company received a proposal from Strike for the acquisition of the Company’s business and assets. The Board did not consider the other potential offers provided either sufficient certainty or would be deliverable in the timeframe needed to resolve the Group’s short term funding issues. The proposal from Strike offered the ability to conclude a transaction in the short term that results in the Company retaining a cash balance for distribution to shareholders. The Proposed Sale is expected to deliver a small return to Purplebricks shareholders and preserves the Company’s business and brand for the benefits of its consumer customers, employees, funding partners and other stakeholders”. On completion of the Proposed Sale, Helena Marston is resigning as CEO. The rest of the Board other than CFO Dominique Highfield have indicated their intention to step down. The offer has support of 43.8% of shareholders.

 

In other news …

Infrastructure. Water companies have pledged to spend £10bn on tackling sewage spills and have apologised for the amount of contaminated water being discharged into rivers and seas, amid mounting public anger over the practice, BBC . Water UK, the body which represents England’s nine water and sewage companies, apologised on behalf of the industry for not “acting quickly enough … we’re sorry that we didn’t act sooner, but we get it”.

Viewpoint: This, on top of the announcement by heads of five of the companies that they would not take bonuses, is a clear signal that sewage (and leaks in water supplies) are huge political imperatives and should lead to heavy investment in the sector in the years ahead.

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