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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September 5, 2023

KIE, SRC, MBH, ECEL, ALU, BRCK, AHT | News – Three concrete failures over summer prompted schools shutdown

Company news

Kier Group (KIE, 84p, £373m mkt cap)

Hybrid construction, property and services group.

Acquisition. The group has agreed to acquire substantially all the rail assets from Buckingham Group Contracting (“in administration”) and its HS2 contract supplying Kier’s HS2 joint venture, EKFB, for a total consideration of £9.6m in cash. “Given its modest size, the Board does not believe this acquisition will materially impact the Group’s forecasts for FY24, nor its year end or average net cash position”.

SigmaRoc (SRC, 54p, £375m)

Heavy construction materials group active in the UK, Channel Islands and Benelux. HY (Jun) results. Rev +17%, £290m (+13% LFL); u-lying PBT +13%, £33.0m; stat PBT +34%, £25.0m; u-lying EPS +11%, 4.0p; interim div, 0p (0p); net debt (post-IFRS16), £183m (HY 22, £217m).

Trading:  Volumes -3%, but revenue and margins supported by dynamic pricing. Six acquisitions, contributing c. £8m to annual EBITDA, at an effective cost of 3.9x EBITDA made following the £30m equity placing in February 2023.

Outlook: “H2 trading has started well, with continuing robust demand for infrastructure and quicklime products, alongside stabilised conditions in the paper, pulp & board market. The second half will see further benefit from the integration of recent acquisitions as well as the organic development initiatives. The normal seasonal cash flow profile is expected to support further de-levering over the remainder of the year, in the absence of further acquisitions and/or development. The Board expects that the group’s diversified end market exposure, geographic spread, and decentralised operating model will continue to deliver a resilient performance and accordingly expectations for the full year remain unchanged. The long-term potential remains exciting, with significant opportunities to extend our geographical reach and product offering across a range of markets for high quality construction materials and industrial minerals”.

Michelmersh Brick Holdings (MBH, 88p, £82m)

UK’s fourth largest brick manufacturer by volume; Belgian operation acquired in February 2019. HY (Jun) results. Rev +24%, £42.0m (+10% LFL); adj PBT +12%, £6.8m; stat PBT +8.9%, £6.1m; adj EPS +12%, 5.7p; interim div +15%, 1.5p; net cash, £11.8m (HY 22, £9.9m).

Trading: “Positive first half, with resilient performance highlighting benefits of our diverse end markets. Out strong opening order book underpinned performance, despite sector wide c. 25% decline in brick volume. Careful management of input costs, with energy costs continuing to be hedged in uncertain markets and investment in solar at plants to supplement longer term energy requirement”.

Outlook: “Our focus on maintaining a well-balanced forward order book and appropriate pricing is expected to support resilient demand across our diverse end market customer base and keep us on track to meet full year expectations”.

Eurocell (ECEL, 113p, £126m)

UK retailer and manufacturer, recycler of PVC windows and doors. HY (Jun) results. Rev -2%, £184m; adj PBT -9.7%, £6.0m (-62%, continuing operations); stat PBT -12%, £3.5m; adj EPS -7.3%, 4.3p; interim div -43%, 2.0p, net debt, £15.2m (£15.0m).

Trading: “A challenging market backdrop, with particularly severe decline in new build housing; first half profits were down as expected”. Volumes -6%, recycling feedstock prices +66% Y/Y. “Increased competition for limited demand is leading to pressure on margins in the branch network. We continue to offset input cost inflation with selling price increases where possible. Early and decisive action has  been taken on operating costs in response to lower volumes; restructuring in Q4 22 reduced operating costs by £5m pa”. A further headcount reduction in Q2 2023 is to deliver savings of c. £2m in H2 and c. £4m pa thereafter, with the related redundancy costs of £1.8m included as a non-underlying item in H1

Outlook: “We anticipate that profits in H2 will benefit from lower input prices as well as the operational cost savings already secured. However, market conditions have deteriorated since the beginning of August, meaning that we now anticipate full year performance will be below our previous expectations. Looking further ahead, the UK construction market continues to have attractive medium and long-term growth prospects, driven by the structural deficit in new build housing and an ageing housing stock that requires increased repair and maintenance. Overall, I believe the actions we are now taking leave the business well positioned to benefit from a recovery in our markets which will, over the medium-term, drive sustainable growth in shareholder value”.

The Alumasc Group (ALU, 153p, £55m)

Sustainable building products, systems and solutions provider. FY (Jun) results. Rev unch, ££89.1m; u-lying PBT -12%, £11.2m; stat PBT -12%, £10.5m; u-lying EPS-13%, 25.0p; div +3%, 10.3p; net debt, £2.8m (FY 22, £4.7m).

Trading: Housebuilding Products rev +19%, £14.7m; op profit +44%, £3.5m. Water Management rev -16%, £39.8m; op profit -34%, £5.8m; delays in new Chek Lap Kok project impacted performance; shipments commenced in July 2023. Building Envelope rev +18%, £34.6m; op profit +14%, £4.1m; further market share gains were assisted by new products and new sales hires.

Outlook: “The year started in line with management’s expectations. Water Management is expected to see positive impact from delayed Chek Lap Kok contract and contribution from ARP acquisition. The Board anticipates short-term market conditions will remain challenging, but are confident the group has taken the right actions to manage these and remains well positioned to benefit when markets normalise”.

Brickability Group (BRCK, 51p, £153m)

Construction materials distributor. AGM.

Outlook: “Trading in the current financial year to 31 March 2024 has continued well, with the group performing in line with Board expectations throughout the first quarter of FY24 and to 31 July 2023. “Whilst expectations are that the month of August will be typically seasonal, the Board remains cognisant of volume reductions experienced by certain housebuilders and manufacturers due to macro-economic conditions. Although the remainder of the current year is therefore likely to present a more challenging trading environment, the Board believes that Brickability’s diversified, multi-business, approach enables the group to continue to perform well. The company will provide a further update in a scheduled trading update in respect of H1 2023 towards the end of October”.

Ashtead Group (AHT, 5,468p, £23,953m)

US-focused plant hire group. Q1 (Jul) results. Rev +19% Y/Y, US$2,696m; adj PBT +11%, US$615m; stat PBT +11%, US$585m; adj EPS +14%, 108c; net debt, US$7,200m (Q1 22, US$5,630m).

Outlook: “Our business has clear momentum with robust end markets in North America, which are supported in the US by the increasing number of mega projects and recent legislative acts.  We are in a position of strength, with the operational flexibility and financial capacity to capitalise on the opportunities arising from these market conditions and ongoing structural change. Despite UK market conditions softening, we expect overall performance to be in line with our expectations and the Board looks to the future with confidence”.

In other news …

RAAC safety. The education secretary has revealed that the sudden failure over the summer of three reinforced autoclaved aerated concrete (RAAC) planks previously classified as non-critical prompted the decision to close over 100 schools, In a statement to Parliament Gillian Keegan said surveyors discovered the non-critical RAAC failures during a programme of assessments started last September: “f RAAC was present, the previous DFE guidance was to grade it as critical or non-critical, and only take buildings out of use for critical RAAC cases. Such was the level of our concern, however, that I asked officials to seek evidence of risks, including to non-critical RAAC”. This led to the identification of three previously classified non-critical risk failures that happened without warning. The first was in a commercial building setting, the second in a school, with the most recent failure, which came to light at the end of August, prompting the decision to close a further 104 school buildings.

Viewpoint: Actual failures rather than fears of failures, including in non-school buildings indicate RAAC will quickly develop into a far wider and more urgent crisis across the built environment, including hospitals, courts and possibly multi-storey housing. This indicates that potentially huge sums will have to be invested, possibly offset by cuts to other budgets.

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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