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 23, 2024

GFRD, PSN, BOOT, FERG, GPE, HLCL | News – National Grid rights issue to support over £30bn UK power transmission investment

Company news

Galliford Try Holdings (GFRD, 272p, £279m mkt cap)

UK construction and infrastructure services group. Capital markets event, strategy to 2030. Presentation this afternoon will focus on the extension of the group’s existing Sustainable Growth strategy to 2026, with new targets to 2030. The new 2030 targets are: revenue, £2.2bn [2026 target, £1.6bn; FY 23 result, £1.4bn], “maintaining disciplined contract selection and robust risk management in resilient market sectors”; divisional op margin, 4.0% [3.0%; 2.4%], “through a focus on both top and bottom line growth and accelerated growth in our higher-margin adjacent market businesses”; cash, “retain a strong balance sheet and operating cash generation”; dividends cover, 1.8x [unchanged]. “Our strategy will be delivered through continued growth in our existing core markets within Building and Infrastructure (including Highways and Environment) as well as in higher-margin adjacent markets including the private rented sector, affordable homes [both now possible after the end of the effective ‘no compete’ agreement with Vistry Group following the disposal of Galliford’s housebuilding activities], capital maintenance and asset optimisation within water, and green retrofit.  We will also continue to grow our higher margin specialist capabilities, including fire protection, active security and facilities management”.

Outlook: “The UK’s planned, and required, investment in economic and social infrastructure continues to support growth in our chosen markets.  Our confidence in the group’s future outlook is supported by our high-quality order book including recent framework and project wins, as well as the robust and resilient pipeline of opportunities we see across our chosen sectors.  We are confident that we will continue to deliver sustainable, profitable growth to 2030.”

Management: Andrew Duxbury, Group Finance Director, whose resignation was previously announced, will leave on 31 May 2024, to assume the CFO role at Persimmon (PSN) on 17 June.  Bill Hocking, Chief Executive, will assume interim responsibility for the finance role, supported by the Divisional Finance Directors, Group Financial Controller, and Kevin Corbett, General Counsel & Company Secretary.  Kris Hampson, whose appointment was previously announced, will join the Group as Chief Financial Officer, in September 2024. In order to reflect the growth of the Infrastructure business and its increasing role in the future growth strategy, David Lowery will join the Executive Board on 1st July 2024 as Divisional Managing Director, Infrastructure.  Until that date, responsibility for Infrastructure will remain with Bill Hocking. Next news, FY (June) trading update, 11 July.

Henry Boot (BOOT, 204p, £273m)

Land Promotion, property investment & development and construction group. AGM.

Guidance: “We have begun the year well, trading in line with market expectations [PBT consensus, £30.7m] and continuing to crystalise profits from both land sales and delivering prime development and premium homes. We have started to see signs that the economy has turned a corner, with inflation falling and interest rates likely to fall, which has improved sentiment in our three key markets. Whilst we expect our performance to be heavily weighted to H2 24, as flagged at our results in March, our focus on high quality land and development in prime locations, along with a renewed banking facility, leaves the group in a position to deliver full year performance as expected”.

Trading: Hallam Land – “has begun the year well”, completing the sale of 776 plots across four sites and exchanging on a further 792 for completion during 2024-26, with another 1,626 under offer. “Whilst activity has not recovered to the heights of 2022, land prices have remained stable in Q1 24, with housebuilders showing encouraging levels of bidding for sites in Hallam’s prime portfolio”. Total land banks stable, at 101,251 plots, of which 7,452 plots have planning permission and a further 13,490 plots are awaiting planning determination. Henry Boot Development – “HBD remains focused on delivering its committed programme of high quality developments, which currently has a £154m GDV. Within HBD’s £1.3bn development pipeline, there are c. £200m near-term, occupier led schemes which have the potential to be added to the committed programme within the next twelve months. “The commercial property market remains broadly stable. Industrial property, which represents c. 70% of HBD’s investment portfolio, continues to outperform with capital values up 0.4%”. Stonebridge Homes –reservations secured for 66% of its FY 24 delivery target of 275 homes. April private sales rate, 0.59 houses per active outlet per week (April 23, 0.46), operating from nine sales outlets. “The housing market in Yorkshire and the Northeast continues to show some early signs of improvement, supported by improved mortgage availability as well as improving affordability and sentiment”. Henry Boot Construction – “continues to experience challenging trading conditions but remains focused on building up its order book”, now 60% secured for 2024. Banner Plant and Road Link (A69) “are both trading in line with management expectations”.

Financing: In order to support the continued growth of the business, the group has agreed terms with existing lenders for a new £125m, three year facility, with the option to extend for a further two years to May 2029. The margin payable under the new facility is 1.6% above SONIA. In addition, the facility includes a £60m accordion. This replaces a £105m committed facility which had a scheduled maturity in January 2025.

Outlook: “Looking ahead, the group remains well placed, supported by a solid balance sheet and a store of high quality opportunities in prime locations across all three of our key markets. This puts the business in a strong position to deliver a full year performance in line with market expectations and to achieve our medium term strategic objectives”.


Ferguson (FERG, 16,550p, £33,448m)

Now entirely North American-focused building materials distributor, formerly Wolseley. Acquisitions. Four acquired, with annualised revenues of c. US$350m: Southwest Geo-Solutions, a full-service distributor of erosion control, containment, geotextile and geogrid products, Texas; AVCO, a distributor of boilers and hot water heaters, Pennsylvania; GAR Engineering, a fire protection engineering service and design firm located, North Carolina; Safe Step Tubs of Minnesota, an independent dealer licensed to sell and install Safe Step walk-in tubs and showers in the Midwest.

Great Portland Estates (GPE, 423p, £1,073m)

London office and retail property group. FY (Mar) results, rights issue, property swap.

Results: Rev +4.6%, £95.4m; op profit before deficit from investment property, revaluation movements and results of joint ventures -0.5%, £19.7m; loss before tax, £295m (FY 23, -£159m); EPRA EPS -25%, 7.1p; divs unch, 12.6p; EPRA TNAVPS, 624p (757p); net debt, £721m (£458m), largely due to acquisition of three buildings during the year for £123m and £142m of development and refurbishment; EPRA LTV, 32.6% (19.8%).

Outlook: “We believe London’s investment markets are at an inflection point; macro-economic effects ushered in a prolonged period of high inflation and elevated interest rates, triggering capital value declines of 58% in real terms since 2016, to levels we last saw after the GFC in 2009. We believe values are now at or around their cyclical trough and consequently, we turned net buyer during the year for the first time since 2013, acquiring £152m of opportunities since March 2023 at an average 42% discount to replacement cost”.

Rights issue: Fully underwritten 3 for 5 £350m rights issue to “allow GPE to take advantage of the attractive new acquisition and development opportunities emerging in central London commercial real estate and deliver attractive and accretive shareholder returns”. The capital raise is expected to result in a LTV of 18.2% and an illustrative increase in available investment capacity of approximately £450m.

Property swap: contracts exchanged to acquire the long leasehold interest at The Courtyard, 1/3 Alfred Place, WC1 for £28.6m, £462 per sq ft and the simultaneous sale of its short leasehold interest in 95/96 New Bond Street, W1 to City of London Corporation for £18.2m, £2,039 per sq ft and in-line with the March valuation. GPE will make a net cash payment to CLC of £10.4m on completion in January 2025.

Viewpoint: This, and bold investment announcements this week from Land Securities Group (LAND) and others, suggest a real turning point for at least the best commercial real estate assets.

Helical (HLCL, 245p, £302m)

Commercial real estate investor, focused on London and Manchester offices. FY (Mar) results, Board changes. Rev -20%, £39.9m; net property income before JVs and valuation moves -30%, £25.5m; loss before tax, £190m (FY 23, £65m); EPRA EPS -63%, 3.5p; divs -59%, 4.83p; EPRA TNAVPS, 331p (493p); net debt, £262m (£231m); LTV, 39.5% (27.5%).

Outlook: “We have an exciting pipeline of committed developments, which due to the quality of the schemes and anticipated supply shortages, are well placed to attract premium rents and achieve strong returns. At the same time, in order to optimise the value of our investment properties, we need to complete our asset management plans, principally through leasing up vacancy, and be ready to realise value as and when liquidity returns to the investment market. The Board is unanimous in its view that, given current market conditions and outlook, the potential returns on a three year view far exceed the likely returns from alternative strategies to return capital to shareholders. To this end, it has signed off on a detailed three year plan, also encompassing business cost reduction and management incentives, which provides a clear blueprint for future growth”.

Board changes: Chief Executive Gerald Kaye to leave at the AGM in July, to be succeeded by Matthew Bonning-Snook, who has over 30 years of delivering highly profitable schemes at Helical. pipeline, with the potential for additional opportunities, will form the cornerstone of our exciting development pipeline for the rest of this decade.


In other news …

Power infrastructure. National Grid (NG.) has announced a £7bn capital raise as it seeks to double its capital spending over the next five years, The grid operator plans to invest around £60bn in networks, with £31bn earmarked for UK infrastructure expansion and upgrades (and £28bn in the US). This investment will support an additional 60,000 jobs in the UK by the end of the decade.

Viewpoint: The grid has been heaving, with multiple stories of housing and other developments held up. The capital raise underlines the attractions of the power sector which, along with power generation, water infrastructure, and climate resilience, is one of the country’s key ‘must have’ rather than ‘nice-to-have’ asset priorities, supporting probably at least a decade of heavy construction investment – all of which are likely to receive multiple pledges in the weeks ahead as the Election looms.

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