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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August 30, 2023

KINO, INL | Economy – Mortgage approvals and demand slide

Company news

Kinovo (KINO, 52p, £32m mkt cap)

Property services provider, formerly Bilby, specialising in compliance and sustainability. Background to possible offer, further to announcement on 25 August. Tim Scott, the ultimate owner of Rx3 and Tipacs2, the holder of 29.89% of the issued share capital of Kinovo [“The Company”], has built a number of successful businesses which have operated within similar sectors, and provided services to similar clients, to that of Kinovo. The gross values to be spent and recovered on DCB Kent remain uncertain. Kinovo has reported the DCB exposure position to be £4.3m, which it originally provided for. “However, there remains significant and inherent risks with the wind out of DCB that could impact Kinovo’s forecast net liability under the novated contracts and ongoing parental guarantees. These contracts are for a total contracted value of £18m, of which Kinovo hopes to receive from their clients £14m, the difference plus professional fees equating to the £4.3m provision. The exposure is therefore not a contract relating to £4.3m but contracts equating to £18m and until these have all been successfully completed and the £14m expected receipts from DCB’s clients actually collected, it will not be known whether the provision of £4.3m is adequate”. The Kinovo Board doesn’t expect that the DCB contracts will be completed until the end of 2025. “The Company’s auditors continue to question
the ability of the Company to continue as a going concern given the uncertainties noted above around DCB and how the Company would fund the working capital position on the ongoing projects, any issues with regard to performance bonds and any variation in the outturn of those contracts. Rx3 commends the Kinovo Board on achieving the growth in underlying EBITDA given the distractions caused by DCB, however, Rx3 understands that in order to continue and sustain this level of growth, the Company will require further investment in staff at all levels as well as improved infrastructure which may impinge on short term profitability. The Company has noted that the top four clients represented c. 44% of turnover in 2023. Contracts with two of these significant customers are due for renewal in 2024. There can be no guarantee that these contracts will be renewed on the same terms or renewed at all. Western Selection, previously the Company’s second largest shareholder, sold down its position during June and July 2023 with Tipacs2 acquiring a significant proportion of Western Selection’s holding at a price of 40p per share. The difficulty that Western Selection had in selling down its c. 12.0% stake, clearly demonstrates that the current share price does not reflect the true market value for a significant seller of the Company’s shares. Tipacs2, and any party in concert with Tipacs2, are now restricted in their ability to purchase further shares in Kinovo under the Takeover Code. Rx3 has not determined whether any offer, if one is made, will be made via a scheme of arrangement or a contractual offer, and Rx3 is considering all options available to it”.

Inland Homes (INL, shares suspended)

Leading brownfield developer, housebuilders and partnership housing group, focused on South and South East. Possible breach of loan covenant. “Inland Homes PLC is considering possible provisions to be made against
certain asset values in its accounts with its auditors. The amounts of any such provisions, which have not yet been determined, appear likely to trigger a breach of the asset cover covenant applicable to the loan between Inland ZDP PLC and Inland Homes PLC. A further announcement will be made as soon as the asset values (net of any relevant provisions) have been determined.”

Economic data

Housing activity. Net approvals for house purchases fell to 9.5% M/M, seasonally-adjusted, to 49,400 in July, lower than consensus estimates of 51,000 and a 22% Y/Y decline, according to latest data from the Bank of England. Approvals for remortgaging (which only capture remortgaging with a different lender) saw a slight increase to 39,300 in July, from 39,100 in the previous month. The ‘effective’ interest rate – the actual interest paid – on newly drawn mortgages saw a 3 basis point increase to 4.66% in July, while the rate on the outstanding stock of mortgages rose by 5 basis points to 2.97%.

Housing activity

Housing market. Demand for homes among potential buyers in the past four weeks fell to 34% below the five year average, while the rate of annual inflation declined to +0.1%, down from +0.6% in July and the slowest rate since 2012, according to Zoopla’s latest House Price Index. The number of agreed property sales so far this year, however, is down 20%. There are more homes for sale now after low supply over the last two years. The largest Y/Y falls in price are in London (-1.0%), with almost the same in SE, SW and Eastern England. Scotland has the highest rate in mainland Britain (+1.7%). The report concludes that first time buyer affordability is improving with income inflation, while in Scotland, N Ireland and Wales, mortgage payments are less than rents – supporting demand.

Zoopla - Buying cheaper than renting in six areas

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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