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 28, 2024

GEN | Economic research – Off-plan sinks for housebuilders | News – ‘Persimmon weighs bid for Cala’, Cala; Election delays infrastructure schemes

Company news

Genuit Group (GEN, 475p, £1,182m mkt cap)

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

Guidance: “Year to date trading is in line with management expectations, with revenue performance reflecting anticipated market softness. A continued improvement in underlying operating margin, due to savings from business simplification and continued deployment of lean projects under the Genuit Business System, with no change to management’s full year earnings expectations”.

Trading: Rev, 4 months to 30 Apr -8.6%, £184m. Sustainable Building Solutions (c. 41% of group) – rev -11% Y/Y “reflecting continued softness in both new housebuilding and RMI markets, however underlying operating margin improved slightly”. Water Management Solutions (c.28%) – rev -12.1% “with similar underlying operating margin, as project revenues were adversely affected by wet weather conditions. However, the volume and intensity of rainfall in key markets continues to underline the need for stormwater attenuation solutions and acts as a structural driver for future growth”. Climate Management Solutions (c. 30%) – rev -2.5% “as growth in the Nuaire ventilation business continued to offset weakness in the boiler market, affecting sales at Adey. The business unit generated a marginal improvement in operating margin”.

Outlook: “We are continuing to benefit from our focus on business simplification, continuous operational improvement and product innovation which is driving an improved operating margin. Genuit is in a strong position to benefit from the normalisation of volumes as markets recover, and we continue to see growth potential in our markets due to the structural sustainability drivers to which we are exposed”. HY results, 13 August.

Economic research

Housebuilding. Research by Hamptons indicates that the share of new homes sold in advance of construction has fallen to the lowest level since 2013, but for the first time small houses have overtaken apartments in their share of ‘off-plan’ sales. Last year 46% of newly built terraced homes were sold this way, compared to 43% of flats, according to the latest Off-plan sales index from the estate agent. This reflects a fall in fall in demand from investors: flats had traditionally been particularly popular with them because typically they provided the highest yields when buying into developments two or three years before completion. The shift has been particularly apparent in London – where off-plan buying had part-funded much of the high rise development boom ahead of the global financial crisis.

UK new homes

In other news …

M&A. Housebuilder Persimmon is among the prospective bidders this week for Cala Group, which has been put up for sale by owner Legal & General, Sky News. is exploring a £1bn takeover bid for Cala Group, a rival player in the sector which has been put up for sale. The channel “has learned that Persimmon, which has a market value of £4.7bn, is leaning towards submitting an offer for Cala ahead of a bid deadline”. Rothschild is overseeing the auction, following the decision of new L&G chief executive, Antonio Simoes, to reverse years of expansion into various housebuilding-related ventures by the pension and investments group. “City sources said it would be a strong contender to buy Cala, whose homes have a significantly higher average sale price than those of Persimmon. Insiders expect Cala, which is being auctioned by L&G, to command a price tag of about £1bn”. Cala, which operates in Scotland, Midlands and South East, has a long-term goal to build 3,000 homes annually. Rivals considering bids, according to the report, could include Taylor Wimpey, and Avant Homes, which is owned by Elliott Advisors and Berkeley DeVeer. Persimmon and L&G declined to comment on Saturday [and no RNS announcement from Persimmon this morning].

Viewpoint: Consolidation across the industry is likely to remain a theme across housebuilding, driven by the desire for land with planning permission and the economies of scale necessary to gain it. If so, there is likely to be further divergence between the top five, with capacity above 10,000 units a year, and mostly a long tail of those on 2,000 – 3,000 and below that could face having to bid for land on lower margins.

General Election. Election delays decision on Lower Thames Crossing and other major infrastructure projects, The critical planning decision on the £9bn Lower Thames Crossing is to be delayed by up to six months because of the general election. The huge project is one of three big pipeline project decisions to be pushed back to allow extra time for new ministers to properly consider plans. The others include the £1.2bn Luton airport expansion and Associated British Ports planned £100m Immingham Eastern Ro-Ro Terminal. A decision deadline on all three has now been set for 4 October. Proposals for the new 14-mile road – of which 2.6 miles would a tunnel under the Thames linking Essex and Kent – were accepted by the Planning Inspectorate in November 2022. The Government has already delayed its planned 2024 start by two years to cope with inflationary pressures. Transport minister Mark Harper said the extra six months was necessary to allow appropriate time for any new secretary of state to consider the applications.

Viewpoint: An example of the disruptions caused – or excused – by general elections; there are probably a number of others affected.


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