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 7, 2024

KIE, NEXS, GFTU | Economics – House prices rise for fifth months, Halifax

Company news

Kier Group (KIE, 136p, £607m)

Hybrid construction, property and services group. HY (Dec) results. Rev +23%, £1,883m; adj op margin, 3.4% (HY 23, 3.7%); adj PBT +7%, £49.0m; stat PBT +6%, £27.0m; adj EPS +2%, 8.7p; interim div, 1.67p (0p); net cash, £17.0m (net debt, £131m); ave net debt, £136m (£243m). Adjusting items include amortisation, £11.1m (£9.8m) and fire and cladding costs, £7.2m (£4.0m).

Trading: Infrastructure Services – rev +16%, £944m “primarily due to the continued ramp up of capital works on HS2.”; adj op margin, 4.7% (4.1%); adj op profit +47%, £32.4m; orders +16%. Construction – rev +29%, £915m “largely due to increased volume in our regional build business”; adj op margin, 3.6% (4.6%) “reduction driven by mix and increased overheads for site starts, as anticipated”; adj op profit +1%, £33.2m; orders -7%. Property – adj op profit -2%, £4.6m “driven by limited transaction activity as a result of difficult market conditions”; capital employed +10%, £163m; ROCE, 5.9% (7.0%). “We had previously limited the amount of capital employed in our Property segment to £170m. However, the property market is showing tentative signs of recovery and the group is currently seeing many attractive investment opportunities”.

Outlook: “The second half has started well, and we are trading in-line with expectations. The group is well positioned to continue benefiting from UK Government infrastructure spending commitments and we are confident in sustaining the strong cash generation evidenced over the last 18 months allowing us to significantly deleverage the Group and deliver the medium-term value creation plan.

Nexus Infrastructure (NEXS, 75p, £7m)

Provider of civil engineering infrastructure services to UK housebuilders through its operational business, Tamdown (having sold its TriConnex and eSmart Services infrastructure and utilities services businesses). FY (Dec) results. Rev -9.9%, £88.9m; loss before tax, £8.5m, inc £0.6m exceptionals (FY 22, -£0.9m); EPS, continuing, -34.5p (-2.2p); div, 3.0p; net cash, £14.6m (£4.6m).

Trading: “Market conditions significantly deteriorated in H2 as the major developers made cuts to their budgets and postponed new project activities. ilke Homes entering into administration was a high-profile example of the turbulence in the sector and Tamdown was significantly impacted by this failure. Decisive actions were taken to right-size the business, in order to protect and improve margins and to ensure we are well-positioned to return to a growth trajectory when the housebuilding market rebounds”.

Outlook: “FY24 has started in line with the Board’s expectations and the order book has grown by 24% from the year end position by the end of January 2024. Tamdown’s refreshed position and strong financial footing mean Nexus is well-placed to return to a growth trajectory when the housebuilding market improves. Market sentiment anticipates a recovery in the housebuilding market over the next 18 months. The Board will continue to review a range of future growth options to deliver expansion and diversification opportunities, to take full advantage of the group’s capabilities and experience.”.

Grafton Group (GFTU, 965p, £1,953m)

UK, Irish, Dutch builders’ merchant and products group. FY (Dec) results. Rev +0.8%, £2,319m; adj op profit -28%, £206m “above the top end of analysts’ forecasts (£194 – 204m); stat PBT -27%, £184m; adj EPS -19%, 77.9p; dividends +9.1%, 36.0p; net cash, £380m (£458m).

Trading: Ireland – “Chadwicks responded well to evolving market conditions and managed to contend with significant steel and timber price deflation, competitive pricing pressure in flat markets and operating cost inflation. UK – “Selco is almost entirely exposed to the UK residential RMI market, a segment that has been hardest hit in the current cyclical downturn that started in the first quarter of 2022.  The rate of decline in volumes moderated from 6.0% the first half to 2.3% in the second half. Selco responded to these tougher market conditions and invested in pricing on core products, balancing volume and margin to optimise profitability”. Netherlands – “Isero held up well in a weaker housing market. Finland – “IKH saw the Finnish economy and construction sector progressively weaken as the year developed leading to a softening of demand across the IKH Partner network and owned stores and a decline in revenue and profitability”.

Outlook: “Looking ahead, we expect to continue to benefit from the spread of the group’s operations across four geographies and exposure to a broad range of end-markets. We will allocate capital as required to ensure that the group’s brands continue to support their customers and strengthen their market positions. In parallel, we will continue to evaluate opportunities in existing markets and new geographies. While trading conditions are expected to remain challenging, demand fundamentals are supported by a structural under supply of new homes and an aging housing stock that requires upgrading including energy conservation measures.  With a somewhat improving economic backdrop, we are confident that Grafton is exceptionally well positioned to benefit as the cycle turns”.

Economic data

House prices rose for the fifth consecutive month in February, the UK’s largest mortgage lender Halifax reports in its latest House Price Index. Prices rose by 0.4% M/M on a seasonally adjusted basis to £292k, following a 1.2% increase in January, while the Y/Y change reduced to 1.7%, from the recent high of +2.3% in January (below). Prices have now risen by 4.6% from September’s low.

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