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.

November 22, 2023

GRI, SDY, BREE, SRC, KGF, HLCL, HICL | News – M&S wins review of Gove refusal to demolish flagship store

Company news

Grainger (GRI, 254p, £1,882m mkt cap)

UK’s largest listed residential landlord. FY (Sep) results. Rev -4.3%, £267m; adj PBT +4%, £97.6m; stat PBT, £27.4m (FY 22, £299m); EPS, 3.5p (31.0p); div +11%, 6.7p; EPRA TNAV -4%, 305p; net debt +12%, £1,416m; LTV, 36.8% (33.4%).

Trading: LFL rental growth, 7.7% (4.7%). “We have delivered c. 1,200 new build-to-rent (BTR) homes and are scheduled to deliver a further c. 400 by the end of the calendar year. This year, we have exceeded more than £100m of annual net rental income on a passing basis, which is more than three times what it was at the start of the strategy. We now own and operate more than 10,000 rental homes nationally and this is set to grow significantly over the coming years. Our PRS portfolio now represents 77% of our operational portfolio by value. We remain very conscious of the affordability challenges facing many renters, and therefore closely monitor rent affordability across the UK, seeking to closely align rental increases with wage inflation. Our average customer rental affordability is c.28% of gross income, well below the widely accepted one-third threshold”. New partnership with Network Rail and bloc group JV ‘Blocwork’, which will provide Grainger a new route for growth giving optionality to forward fund and acquire a number of BTR schemes across Network Rail’s extensive land holdings.

Outlook: “”In the next three years, post-tax EPRA earnings will double compared to last year, as we deliver our fully-funded committed pipeline. We remain in a very strong position to continue to deliver great performance and a great rental experience to our customers”. AGM, 7 February.

Speedy Hire (SDY, 36p, £165m)

UK and Ireland tool, equipment and plant hire services provider. HY results. Rev -2.9%, £209m; adj PBT -56%, £5.9m; stat PBT -58%m £5.6m; adj EPS -55%, 0.98p; interim div unch, 0.8p; net debt, £89.6m (HY 22, £86.7m.

Trading: “Resilient UK hire revenue performance, down 1.2%; a challenging but manageable market backdrop; we are benefitting from diverse customer mix, including strong national customer performance that mitigates some softening with regional customers”.

Outlook: “The Board remains confident of delivering results for the full year, albeit at the lower end of its expectations. The group has a promising pipeline of opportunities to deliver revenue growth in the second half and beyond and we will continue our strategic investment in growth initiatives including Transformation, Trade and Retail and ESG. We expect to see the benefits of our investments in our Velocity strategy including operational efficiency and supply chain optimisation, in the second half and beyond”.

Breedon Group (BREE, 335p, £1,138m)

UK and Ireland aggregates group. Trading update, ten months to Oct.

Guidance: “The group has delivered a strong performance in the year to date, as a result of which we now expect to achieve full year 2023 underlying EBIT ahead of market consensus [£148m]”.

Trading: “The GB business remained focused on self-help actions to mitigate the impact of a softening market. In Ireland, market dynamics were unchanged with tendering in the Republic of Ireland underpinned by long-term structural growth drivers and healthy budgets while the pipeline in Northern Ireland was impacted by the ongoing lack of a governing assembly. The Cement business maintained a robust performance in GB and Ireland. The Kinnegad Cement plant maintained its world leading performance with alternative fuel substitution in excess of 80%. We continue to make progress in respect of our sustainability priorities; our Breedon Balance range of products is gaining traction and we continued to reduce the clinker content of our cement”.

Outlook: “Due to the macroeconomic landscape, visibility in the construction materials sector remains limited in the short-term, particularly in GB, offset by long-term structural growth drivers in infrastructure and housebuilding. Consequently, the group continues to focus on self-help, executing operational and commercial excellence programmes while pursuing opportunities in our healthy M&A pipeline”.

SigmaRoc (SRC, 50p, £348m)

Heavy construction materials group active in the UK, Channel Islands and Benelux. Acquisition and placing. Conditionally agreement to acquire certain European lime businesses of CRH (CRH) in Germany, Czech Republic and Ireland (‘Deal 1 targets) and call options to acquire separately ‘Deal 2’ target in UK and ‘Deal 3’ target in Poland. The total consideration payable for the Deal 1 Targets only is €745m; and for Deal 2 and 3, €255m if both call options are exercised. The targets have pro forma FY 22 revenue of £1bn and underlying EBITDA of £211m. CRH and SigmaRoc will cooperate in future through reciprocal supply agreements across several mutually strategic sites in the UK, Ireland and Poland, providing both parties with the long term benefits. The Company intends to raise c. £200m gross via the issue of up to 421 million shares at 47.5p.

Outlook: “The acquisitions represent an opportunity to become Northern Europe’s leader in lime, combining high quality businesses and complementary footprints”. Following the Acquisitions, the enlarged group will be positioned as either the number one or number two participant of the lime market in all of its key markets”.

Kingfisher (KGF, 231p, £4,348m)

Owner of home improvement stores across France and Europe, including B&Q in UK. Q3 (Oct) trading update. Guidance: “Full year adjusted PBT guidance lowered to c.£560m [from c. £590m at HY and £634m previously]  to reflect continuation of Q3 trends in Q4, including continued resilience in the UK and market weakness in France”.

Trading: Total Q3 rev -2.1%, £3.2bn (-2.7% constant currency; -3.9% LFL). “Underlying retail and trade consumer trends are resilient in the UK and improving in Poland, in line with our expectations; market trends in France weaker than expected”. UK rev +1.1% LFL, £1,597m (+1.1%, B&Q; +0.9%, Screwfix); France -8.6%, £1,034m.

Helical (HLCL, 230p, £284m)

Commercial real estate investor, focused on London and Manchester offices. HY (Sep) results. IFRS loss of £93.1m (HY 22, profit £17.2m), primarily driven by revaluation losses; EPRA EPS, 1.1p; interim div unch, 3.05p; EPRA TNAV, 409p (31 Mar, 493p); see-through net borrowings, £250m (£231m); LTV, 33.5% (27.5%).

Trading: See-through investment portfolio valuation -12%. £746m, with yield expansion of 46bps offset by 1.8% ERV growth. “We have experienced a further significant outward yield movement and, while interest from potential occupiers has been encouraging, lease negotiations are taking longer to conclude. However, having taken the pain of reductions in value, Helical is now well positioned to drive growth through the letting of the vacant space in its investment portfolio”.

Outlook: “Our development pipeline is expected to provide surpluses for the foreseeable future. Scheduled to start in 2024 and be delivered from late 2025 onwards, this pipeline will be supplemented with additional ‘equity-light’ opportunities as building owners seek specialists in office development and refurbishment to partner with them to maximise the value of their assets. In addition, banks and other financial institutions with non-performing assets should provide additional opportunities for Helical to create value. Recycling equity and seeking third party financing to fund the pipeline of opportunities will allow the company to grow the business while containing gearing to appropriate levels. There remains a shortage of best-in-class newly refurbished or redeveloped office space in central London. Helical is well positioned to capitalise on current cyclical opportunities”.

HICL Infrastructure (HICL, 137p, £2,775m)

Listed infrastructure investment group with diversified portfolio of 117 investments in UK, Europe and N America. HY (Sep) results. NAV -3.3%, 159p; interim div unch, 2.06p.

Trading: “In a period dominated by significant structural shifts in the macroeconomic environment, HICL’s core infrastructure assets continued to perform in line with expectations. The Company’s diversified portfolio benefits from predictable long-term cash flows which are positively correlated to inflation and insulated in large part from economic and financial market volatility. Given market conditions, the Board and investment manager have been particularly focused on the active management of HICL’s portfolio and balance sheet. Over £320m of asset sales have been announced at or above their respective valuation at 31 March”.

Outlook: “In this environment the Board remains focused on appropriate capital allocation. The bar for new acquisitions is suitably high. Additionally, market volatility has historically offered attractive investment opportunities for those companies that have maintained optionality through active balance sheet management. HICL’s investors should expect the focus on self-funded and accretive portfolio rotation to continue. In the longer term, the megatrends of decarbonisation and digitalisation are largely unaffected by short-term market volatility and continue to drive growth in the core infrastructure sector. This provides a compelling strategic backdrop for the company to execute its long-term strategy”.

In other news …

Planning. The High Court has granted permission for M&S to apply for a Judicial Review of the decision by Levelling Up Secretary Michael Gove to refuse planning permission for the redevelopment of its flagship store at Marble Arch, ConstructionEnquirer.com. Gove refused plans in August for M&S to demolish and rebuild the store after campaigners said the building should be refurbished because of the amount of embedded carbon it contains. Plans for a new ten-storey steel and glass office complex on the site have previously been approved by Westminster City Council the GLA and planning inspector David Nicholson.

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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Opinions contained in this communication represent those of PERL and/or our affiliates at the time of publication and PERL does not undertake to provide updates to any opinions or views expressed. PERL does not hold any positions in the securities mentioned in this communication, however, PERL’s directors, officers, employees, contractors and affiliates may hold a position,  and/or may perform services or solicit business from, any of the companies or related securities mentioned.

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