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.

January 9, 2024

GLE, SHI, LORD, UTG

Company news

MJ Gleeson (GLE, 538p, £314m mkt cap)

Low-cost housebuilder, focused on north of England, and strategic land enabler, focused on south. HY (Dec) trading update.

Guidance: “Additional costs relating to a number of older sites, along with the cumulative impact of current market conditions including extended site durations, sales incentives and multi-unit sales, are now expected to result in full year gross margins falling below expectations by circa 1.5% to 2.0%”. [In the analysts conference call, management indicated this would contribute to a c. 20% decline in FY (Jun) 24 adj PBT compared with current consensus of £32.6m]. “Reflecting the significant investment in bringing forward a higher proportion of home starts before June 2023 the group will report net debt of £18.7m at 31 December 2023 (30 June 2023, net cash £5.2m). The cash impact of this investment is expected to unwind over the next two years”.

Trading: Gleeson Homes sales -14% Y/Y, 769 homes, “reflecting the weaker conditions experienced across the housing market during 2023”. Net reservation rates during the half-year period were 0.41 per site per week (HY 22, 0.36). Current forward order book +84%, 586 plots. Gleeson Land completed the sale of one site period (H1 23, three sites sold); marketing now commenced on a further four sites.

Outlook: “Against the backdrop of stabilising interest rates the Board anticipates a recovery in demand for low-cost housing in the seasonally busier selling period over the coming weeks and months. Gleeson Homes also continues to negotiate further multi-unit sales and expects to enter into agreements over the coming months for delivery of homes in the current and next financial year”. HY results, 15 February.

SIG (SHI, 32p, £380m)

Supplier of energy efficiency and specialist building materials to trade customers across Europe. FY (Dec) trading update.

Guidance: “FY 23 results reflect continued strong execution, against a challenging market backdrop. Underlying operating profit expected to be in the upper half of the guidance range of £50m – 55m provided previously”. LFL sales -2% Y/Y, £2.8bn. Positive free cash flow, c £4m.

Trading: UK LFL sales -1% (H1, +1%; H2, -4%); EU, -3% (-1%, -4%). “LFL growth rates across most geographies dropped in H2, compared to H1, due to the declining impact of input cost inflation.  Absolute volumes softened through the year due to continued weakening in market demand, reflecting conditions across the building and construction sector”. In the UK Interiors business, the strategic and operational changes made since mid-2020 continue to enable the business to return towards its previous market position, reflected in a robust performance against the market in FY 23.  In UK Exteriors, the performance was also strong relative to the market, driven by renewed commercial focus and execution under the new structure”.

Outlook: Restructuring and productivity initiatives completed in H2 2023 will deliver approximately £10m of annualised cost savings, the majority of which will benefit FY24. Increased strategic focus on specialist businesses and operational execution across the group. “Whilst we expect continued softness in market conditions in 2024, we are confident in our ability to manage through this current phase of the cycle and to continue to strengthen our operations, ready to take advantage of the significant long-term opportunities as markets recover”. FY results, 5 March.

Lords Group Trading (LORD, 50p, £81m)

Building materials distributor. Directorate change. CFO and COO, Chris Day, has decided to leave the company to take up another professional opportunity. Following his recent transition to a partially operational role within the group, a formal process to identify and appoint a new CFO had already begun and is now at an advanced stage, to be in place as soon as possible to ensure a smooth transition. He will leave the Group in the period to 30 June 2024, following the publication of the FY (Dec) 23 annual report.

Unite Group (UTG, 1,046p, £4,507m)

Owner, manager and developer of UK student accommodation. FY (Dec) trading update, Q4 fund valuations.

Guidance: “Continued strong demand with 71% of beds sold for the 2024/25 academic year (2023/24: 70%).     Confident in delivering rental growth of at least 5% for 2024/25 academic year. Guidance maintained for 2023 adjusted EPS at the upper end of 43 – 44p range. Higher than expected rental income in term 1 of the 2023/24 academic year has offset the impact of higher operating costs in the second half of the financial year. Property values broadly stable in Q4 (USAF: +2.1%, LSAV -0.7%). The increase in USAF is driven by quarterly rental growth of 2.8% and a 3 basis point increase in property yields to 5.3%; the decrease in LSAV is driven by quarterly rental growth of 2.5% and a 15 basis point increase in property yields to 4.5%, reflecting its higher London weighting when compared to USAF. “We expect the valuation of our wholly owned portfolio at 31 December 2023, which is 33% weighted to London by value, to be broadly stable over H2”.

Outlook: “We will continue to play a leading role in increasing the supply of much needed student accommodation at a time when HMO landlords are leaving the market at pace and the new supply of purpose-built student accommodation slows. We are committed to working closely with our university partners to ensure students have access to high quality, affordable accommodation”.

Building safety: Agreement reached with a contractor to recover 75% of our remediation costs relating to five buildings, a portion of which will be recognised in the Group’s year-end balance sheet. “We ultimately expect to recover 50 – 75% of total cladding remediation costs through claims from contractors, although the settlement and recognition of these claims is likely to lag costs incurred to remediate buildings. This will result in a greater level of net spend in the earlier years of the programme”. Net of amounts recognised under claims, the Group expects to incur an additional c. £69m provision (Unite share, c.£26m) in the second half of 2023.

In other news …

Housebuilding. Housebuilder Stewart Milne group has been put in administration and ceased trading with the loss of 217 jobs, ConstructionEnquirer.com. Administrator Teneo shut all sites on Monday afternoon leaving staff and suppliers stunned at the group and six of its subsidiaries. Teneo said: “No further construction is being completed, at this time by the companies as a result of the administrations. “The administrators will shortly be contacting all known customers with reservations, creditors, suppliers, subcontractors and hired plant/equipment providers”. The whole group, headquartered in Aberdeen and also operational in England, was put up for sale in April 2022 when its founder and main shareholder Stewart Milne decided to retire after nearly 50 years at the helm of the business. Two bids for the business were rejected by the firm’s bank.

Prices are as at the previous day’s close. Where quoted, net debt is pre-IFRS16 (excluding leases) unless otherwise stated.

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