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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May 15, 2024

KLR, BOOT, MSLH, LORD

Company News

Keller Group (KLR, 1,136p, £829m)

World’s largest ground engineering group, with 60% exposure to North America.

Guidance: “The strong momentum cited at the full year results in March continued through the period, with overall performance materially ahead of prior year. This momentum, combined with a strong order book and recent contract wins, gives us good visibility and enhanced confidence in performance for the remainder of the year. Accordingly, we now anticipate full year performance to be materially ahead of the Board’s original expectations”. The  strong cash performance continued in the period and we expect net debt/EBITDA to be at the bottom end of the 0.5x – 1.5x range at the half year (H1 23, 1.2x).

Trading: North America – “trading continued to be strong, driven by ongoing infrastructure spend and the sustained improvement in the operational performance of the foundations business. Suncoast also performed well and is ahead of prior year, despite the expected softening of market conditions in the residential segment, although its momentum is still anticipated to moderate during the rest of the year”. Europe and Middle East – “weak demand persisted in the residential and commercial sectors across Europe, whilst the infrastructure sector remained more resilient. In the Nordic region, performance of the challenging projects in the prior year is improving as a result of management actions, although one project remained loss-making in the period”. APAC – “Austral traded profitably and in line with plan, with no contract losses following the turnaround of the business in the second half of 2023. Keller Australia had a strong start to the year, albeit, as anticipated, trading in the period was lower than the prior year. In ASEAN, continued market softness persisted, with low levels of activity, whilst Keller India performed well”. HY results, 6 August.

Henry Boot (BOOT, 196p, £263m mkt cap)

Land Promotion, property investment & development and construction group. Contract win. The group’s construction business has been appointed by Rotherham Council to deliver the £36m redevelopment of Rotherham Markets and an adjacent new library, forming a key part of the wider town centre masterplan. The project comprises a major refurbishment and redevelopment of the existing indoor and outdoor Rotherham Markets. This will include creating a new food hall and dining area on the first level above the existing ground floor retail, in addition to new workspace for charities, social enterprises and voluntary groups on the second floor”.

Marshalls (MSLH, 308p, £778m)

Leading manufacturer and supplier of paving and hard landscaping products. AGM.

Guidance: “The Board continues to expect a modest recovery in the second half predicated on a progressive improvement in the macro-economic environment.  Against this backdrop and given the decisive management actions taken to reduce capacity and the cost base in 2023, the Board remains confident that profit in 2024 will be in-line with its previous expectations and at similar levels to 2023”.

Trading: First four months, FY 24: rev -10% LFL, £199m “reflecting the expected continuation of weak demand in the Group’s key end markets of new build housing and private housing RMI”. Landscape Products – rev -15% LFL, £89m. “A weaker performance in new build housing and discretionary private housing RMI was moderated by a more modest reduction in commercial & infrastructure revenues”. Building Products – rev -3%, £54m “Revenue in the civils and drainage business increased year-on-year supported by increased infrastructure work, and more recently by some improvement in housing groundwork activity.  Bricks and mortar revenues were lower than 2023 due to weaker new build housing activity in the period compared to a relatively strong performance in the same period last year; the group further increased its share of the UK brick market in the first quarter. Roofing Products – rev -8%, £56m.  “Viridian Solar revenue was slightly higher than 2023 despite the significant reduction in new build activity, which is driven by the start of the expected increase in volumes arising from a change in building regulations”. Net debt, April, £175m (April 23: £220m).  The £160 million revolving credit facility was undrawn at the end of April; “the Board’s ongoing priority is to reduce leverage from free cash flow generated by the business”.

Lords Group Trading (LORD, 49p, £80m)

Building materials distributor. FY (Dec) results. Rev +2.8%, £463m; adj EBITDA -11%, £26.8m; EBITDA margin, 5.8% (FY 22, 6.7%); adj PBT -41%, £10.4m; stat PBT -77%, £3.0m; adj EPS -46%, 4.4p; divs unch, 2.0p; net debt, £28.5m (£19.4m).

Trading: “Performance was in line with market expectations. The non-discretionary nature of a significant proportion of Lords’ product range, alongside the group’s differentiated growth strategy, delivered this performance despite material market headwinds across the sector”. Plumbing and Heating division – rev +8.0%, £248m, “benefitting from extended product ranges at higher margins such as renewables”; EBITDA -6.5%, £12.9m; margin, 5.2% (6.0%). Merchanting and other services – rev -2.6% (-6.3% LFL), £215m, “reflecting price deflation in some product categories”; EBITDA  -13%, £14.0m; margin, 6.5% (7.3%). “The decline in adjusted EBITDA reflects challenging market conditions in the higher margin Merchanting division and anticipated impact of the loss making Alloway Timber at acquisition. “Successful completion of two acquisitions in Merchanting – Chiltern Timber Supplies and Alloway Timber – adding six branches to the network. ESG momentum continues, including the launch of a new environmental policy alongside setting scope 1,2,3 emission reduction targets”.

Outlook: “FY 24 has begun with wider market conditions remaining uncertain and as such we will continue to manage the business carefully and prudently, particularly when looking at M&A opportunities. In line with the wider market, trading in Q1 FY24 was impacted by a combination of macro conditions and wet weather. Furthermore, demand in the P&H division was turbulent following the timing adjustment to the Government’s Clean Heat Market Mechanism. Despite the uncertain market conditions, Lords is trading in line with market expectations and the Board remains confident in achieving the Group’s medium-term EBTIDA margin target of 7.5%”.

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