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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November 25, 2022

Would-be buyers putting plans ‘on hold’ and renting, Rightmove (LSL, BREE)

Company news

LSL Property Services (LSL, 262p, £272m mkt cap)

Estate, lettings and property/financial services agent. Trading update, 10 month to October. Guidance: “The challenging background means that there is a wider range of potential outcomes for the full year than previously expected. LSL’s performance has remained resilient, and we are confident that underlying operating profit in the second half will at least be broadly in line with the second half of 2021, with the possibility of a stronger performance depending on the volume of valuation instructions received from lenders. Despite the significant disruption in our markets, we expect H2 profit to at least be broadly in line with H2 2021, with the possibility of a stronger outturn, which would be dependent on a number of factors, notably the volume of lender valuation instructions in the remaining weeks of the year”. Trading: “LSL traded strongly in the first half, with our Surveying & Valuation and Financial Services businesses achieving record revenues. The Estate Agency Division retained the substantial market share gains made in 2021, in doing so building a strong sales pipeline as significant profits were delayed by the continuing slow speed of exchanges across the market. This meant that the group entered the second half well placed to deliver a strong H2 profit performance, ahead of the equivalent period in 2021. Since that time, market conditions have been more challenging than previously expected. Across the market, this has given rise to a reduction in mortgage activity and new house sales, and an increase in fall-throughs of previously agreed sales”. Rev, 10 months Y/Y +0.3%, £276m; Financial Services +9% in smaller mortgage and protection markets; share of UK and re‐mortgage market, 10.2% (10 months 21, 9.0%); Surveying +9%; Estate Agency -6%, exchanges in H2 in line with expectations; Lettings +2%. “The initial impact of economic and political uncertainty was most evident in Surveying & Valuation, as a number of lenders took time to assess the outlook and reduced their appetite for new business, which fed through into a reduction in the number of valuation instructions.  The scale of this reduction is expected to be a relatively short-term feature, as lender instruction levels normalise in line with overall lending appetite”. Outlook: “Most profits are generated by the Financial Services Network and Surveying & Valuation businesses which are impacted by the size of the mortgage market, and in the case of Financial Services, the protection markets, which are expected to be less volatile than the housing market. As such, our very early estimates are that the total mortgage lending market will reduce in 2023, although the market impact of a smaller purchase market is expected to be considerably offset by higher levels of refinancing activity. The housing market is heavily impacted by sentiment and has the potential to surprise on the upside. However, with the recent reduction in activity levels and continuing uncertainty over UK economic conditions, until we have greater clarity on the economic backdrop, we are cautious on the market outlook for 2023. A significant reduction in housing transactions would clearly have a material effect on our Estate Agency residential sales business and our direct-to consumer financial services business. We continue to focus on proactive management of our cost base, to limit the impact of these pressures”.


Breedon Group(BREE, 57p, £969m)

UK and Ireland aggregates group. Trading update, 10 months to October. Guidance: “While construction output has softened in the second half, the majority of our end-markets remain resilient, with infrastructure and industrial markets continuing to deliver growth. Consequently, we expect to deliver full year results in line with expectations as set out with our interim results”. On track to deliver year-end covenant leverage comfortably below 1x. Trading: “Conditions during the second half remained supportive, enabling the group to fully recover rising input costs through robust pricing and disciplined cost management”. Four months to October rev +16% Y/Y; YTD, +14%, £1,186m (+12% LFL). Outlook: “While the short-term economic outlook limits visibility for the sector, our longer-term prospects remain well-underpinned by structural growth dynamics, and our exposure to infrastructure, housing and industrial end-markets is favourable. Independent of market conditions, there are many opportunities for progression within our control; optimising our assets, executing our active M&A pipeline in GB and Ireland and continuing to recover input cost inflation through our dynamic pricing strategy”.

In other news …


Housing. Demand for homes to rent has jumped as some aspiring buyers put their plans on hold in the hope that mortgage rates will drop in the new year, according to Rightmove. The number of people enquiring about homes to rent is up 23% on this time last year, and the total number of home-movers in the market looking to rent or buy is just 1% lower than last year. First-time buyers have been hardest hit by mortgage rate rises, and some of this group are now looking at the rental market as a short-term alternative. However, the number of smaller rental homes on the market is 4% lower than last year so choice is limited. According to the leading property portal’s data, 42% of first-time buyers with plans to buy in the next few years have already got their total deposit saved, indicating there is a group ready and waiting to see if mortgage rates will drop. The shift is putting further pressure on an already stock-strained rental market, with agents saying they are managing 36 enquiries per property on average, as competition between tenants hit record levels this year

Fortnight ahead

Building&Contruction Daily – fortnight ahead
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