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 6, 2024

GFRD, LSL, BREE, IBST, LMP, LXI | Economics – Construction PMI best since August

Company news

Galliford Try Holdings (GFRD, 241p, £247m mkt cap)

UK construction and infrastructure services group. HY (Dec) results. Rev +21%,£819m; divisional op margin, 2.5% (HY 23, 2.3%); adj PBT +33% £15.6m; stat PBT +81%, £13.0m; adj EPS +50%, 13.2%; interim div +33%, 4.0p; ave month end cash, £150m (£154m).

Trading: Building division – rev +12%, £446m; margin, 2.4% (2.3%); op profit +14%, £10.6m; orders +5%, £2.2bn (led by defence & custodial and education). “Revenue has grown, as expected, as we now benefit from the volume of new work that was delayed by inflation and public sector procurement challenges in 2022. We continue to target margin progression”. The division’s Private Rented and Affordable Housing business has recently been appointed to the £3.2bn Communities & Housing Investment Consortium Newbuild Development Framework for affordable homes and anticipates building on its existing capabilities in the build to rent market.  Infrastructure – rev +31%, £362m; margin, 2.6% (2.3%); op profit +43%, £9.3m; orders +7%, £1.5bn (61%, Environment; 39%, Highways). Investments – directors’ valuation, £43.5m (£46.1m), reflecting discount rate, 7.3% (7.1%).

Outlook: “The UK’s investment in economic and social infrastructure continues to support growth in our chosen markets. Our recent acquisition of AVRS Systems together with the acquired specialist businesses, MCS Control Systems and Ham Baker, further enhance our Environment business’s client offering in the key areas of off-site build and asset optimisation. Our future outlook is supported by recent framework and project wins as well as the robust and resilient pipeline of opportunities we see across our chosen sectors. The group enters the second half with strong momentum and confidence for the financial year to 30 June 2024 and the longer term. Our Sustainable Growth Strategy is on track to achieve our targets ahead of plan”. Ave net cash for FY expected to be at a similar level to H1. Capital Markets Event to update strategy to 2030, 23 May.

LSL Property Services (LSL, 238p, £247m)

Estate, lettings and property/financial services agent. Trading update.

Guidance: “Following a positive final quarter in 2023, momentum has increased at the start of the new financial year with positive activity levels across the group. At the end of February 2024, underlying operating profit was materially ahead of the Board’s previous expectations and around £7.5m ahead of the same period in 2023, reflecting in particular very strong trading in the Surveying & Valuation division”.

Trading: Surveying & Valuation – “From the middle of January there has been a material and sustained increase in valuation instructions reflecting the benefit of contract wins as well as increased market activity. For first two months of the year, divisional income per day was 50% higher than for the equivalent period in 2023 and in February was at its highest level since the market disruption that followed the mini budget in October 22, and approaching the very strong performance recorded in Q1 22”. Financial Services – “Mortgage completions were in line with our expectations, reflecting the opening pipeline in 2024, consistent with the surveying valuation instructions”. February mortgage applications per day 23% higher than 2023. Estate Agency Franchising – “Early performance in 2024 reflects the benefit of the reduced volatility of the franchising model. Cumulative profit over the first two months of the year was around £1m compared to losses of £1.5m and £2m for the same period in 2023 and 2022 respectively”.

Breedon Group (BREE, 380p, £1,291m)

UK and Ireland aggregates group. FY (Dec) results and acquisition. Rev +7%, £1,488m (+4% LFL; GB +6%, Ireland +4%); u-lying PBT +1%, £145m “ahead of upgraded expectations”; stat PBT -1%, £134m; u-lying EPS -4%, 34.0p; div +29%, 13.5p; net debt, £170m (FY 22, £198m); leverage, 0.5x (0.7x).

Trading: Pricing contributed 9ppt to rev increase, offset by 2ppt volume reduction “reflecting challenging macroeconomic conditions”. Record Underlying EBIT “due to disciplined focus on cost recovery and self-help measures”. Dividend payout ratio now at target of 40% (2022: 30%); total cash returned to shareholders in 2023 through dividends increased to £37.3m (2022: £30.5m).

Acquisition: Entry to the US through the acquisition of BMC Enterprises for US$300m, “expected to be earnings enhancing in the first full year of ownership”.

Outlook: “The near-term macroeconomic and geopolitical landscape remains uncertain. Infrastructure and housing end-markets are forecast to return to growth in the medium-term. Our proven strategy offers substantial optionality and multiple routes to growth, underpinned by our healthy balance sheet, diversified funding and approach to capital allocation”. Post-acquisition pro-forma Covenant leverage, c.1.4x; “enabling flexibility for dividends and future bolt-on acquisitions across each of our platforms”.

Ibstock (IBST, 160p, £627m)

UK’s largest brickmaker. FY (Dec) results. Rev -21%, £406m; adjusted EBITDA -23%, £107m; adj PBT -64%, £38m; stat PBT -71%, £30m; adj EPS -39%, 13.9p; div -20%, 7.0p (“consistent with stated capital allocation” 50% payout policy); net debt, £101m (FY 22, £46m).

Trading: “Sales volumes reduced in line with UK domestic brick deliveries; despite challenging backdrop, selling prices remained stable through the year”. EBITDA margins, 26.5% (27.2%) “remained strong, reflecting a continued focus on customer service and execution, combined with the disciplined and decisive management of capacity and costs”. Outlook: “Activity in the early weeks of 2024 has been in line with the subdued levels seen in the latter part of the 2023 year; while remaining cautious, we currently anticipate a degree of improvement as the year progresses. With the factory network running at lower levels of utilisation, the group will retain a level of elevated fixed cost in 2024, which preserves our ability to build back quickly as markets recover. We anticipate year-on-year inflation across the cost base in 2024 albeit at a more modest rate than 2023. Despite the cautious outlook for 2024, the group remains confident in its ability to continue to respond to market conditions. Although the timing of recovery is uncertain, Ibstock is well positioned to benefit and to deliver on our growth targets over the medium term”.


LondonMetric Property (LMP, 189p, £2,032m)

Real estate investment trust, owner and manager of grocery-led logistics sites. All-share merger with LXi REIT (LXI) completed, with admission of 942,960,279 New LondonMetric shares.

Economic data

Construction activity recorded almost flat output levels in February after five months of falls, S&P Global reports in its latest UK Construction PMI report. At a seasonally-adjusted 49.7, up from 48.8 in January, the headline index registered its highest level since August and was only fractionally below the neutral 50 threshold. All three main categories of construction activity saw a near-stabilisation of business activity in February. House building saw the biggest turnaround since January, with the respective index at 49.8, up from 44.2 and the highest level since November 2022. Survey respondents suggested that improving market conditions had gradually contributed to a stabilisation of residential construction work. In contrast, the commercial segment saw a more subdued performance, with construction companies citing hesitancy among clients and constrained budget setting. Total new work increased marginally, ending six months of decline. “This appeared to reflect a turnaround in tender opportunities and greater client confidence, especially in housebuilding”.

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