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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April 11, 2024

MER, GPE, LOK | Economics – Housing demand rises for third straight month, RICS

Company news

Mears Group (MER, 361p, £353m mkt cap)

UK housing support services provider. FY (Dec) results. Rev +14%, £1,089m; PBT +34%, £46.9m; EPS +30%, 31.9p; divs +24%, 13.0p; net cash, £109m (FY 22, £100m); ave daily net cash, £76.5m (£42.9m).

Trading: “The group secured aggregate new contract awards of around £175m during FY 23, at a bid conversion rate of over 70% by value, reflecting an increasingly focused approach when bidding for new contract opportunities. The Social Housing Decarbonisation Fund Wave 2 saw Mears submit successful grant applications of c. £40m. This will contribute a total works value of around £120m to be delivered over the course of 2024 and 2025. The group remains well-placed in bidding a new contract with North Lanarkshire Council (‘NLC’) to provide reactive maintenance, compliance, servicing, and planned works. The contract would commence in July 2024 for a period of up to 12 years, with an annual value in the region of £125m and a total contract sum of over £1.5bn, doubling the existing work with this key client”.

Outlook: “Mears has made a strong start to 2024. The Board continues to anticipate a reduction in management-led revenues as the elevated activity level seen across FY 23 normalises, although the timing remains uncertain. Adjusted profit before tax in FY 24 is expected to be of a similar quantum to FY 23”.

Great Portland Estates (GPE, 373p, £946m)

London office and retail property group. Business update.

Trading: £22.5m of leases signed in year to 31 March, 9.1% ahead of March 2023 ERV. Commitment to 143,100 sq ft redevelopment of Minerva House, SE1; commenced 67,600 sq ft development of French Railways House, SW1 – together delivering profit on cost 21.2%; development yield 6.7%. Flex footprint expanded to more than 500,000 sq ft, on track to hit 1 million sq ft. Organic rent roll growth opportunities of 90% to £211m, before further ERV growth or acquisitions.

Outlook: “Looking forward, with interest rates and yields at around their peak, we are increasingly confident that our growing development and Flex activities, combined with strengthening rental growth, will drive attractive returns in the near term. Furthermore, with the investment market moving in our favour, we expect to add to our growth prospects as the year progresses”.

Lok’n’Store Group (LOK, 958p, £315m)

UK self-storage group. Recommended cash acquisition of Lok’n’Store by Shurgard Self Storage (unquoted). Under the terms of the acquisition, Lok’nStore shareholders will be entitled to receive for each share 1,110p in cash, valuing the group at c. £378m, a premium of approximately 15.9% to the closing price of 958p and 36.7% to the volume-weighted average price of 812p for the three-month period ended 10 April.

Economic data

Housing market. Housing enquiry levels improved for the third successive month in March, while the direction on pricing turned more positive, according to the latest Residential Market Survey from the RICS. A net balance (% reporting rise minus % reporting fall) of +8% of agents reported an increase in new buyer enquiries during March, up from +6% in February (below, right). Moreover, on a twelve-month view, a net balance of +46% of contributors envisage sales activity rising, from +42%. Sales instructions registered +13%. For the headline price indicator, a less negative -4% was returned in March (below, left), suggesting a largely stable picture for the country as a whole; all regions have seen their readings for the house price series either turn less negative or move into positive territory when compared to the start of the year. In the case of Scotland and Northern Ireland, the house price net balance moved further into expansionary territory at +21% and +60% respectively (from +10% and +53% in February). Looking ahead, respondents continue to foresee house prices returning to growth over the next twelve months, as implied by the net balance of +38% posted in March, from +36%. All parts of the UK are anticipated to see a rise in house prices over the year to come, with sentiment particularly robust in Northern Ireland, London and Scotland. Across the lettings market, the aggregate gauge of tenant demand remains modestly positive at a net balance of +19% (marginally up on a reading of +16% last month), but compared to a peak of +59% in July. That said, the supply of rental properties becoming available remains restricted, as the landlord instructions indicator once again exhibits a weak net balance reading of -19%. Consequently, a net balance of +34% of contributors still expect rental prices to rise in the coming three months – albeit this is the least elevated reading since January 2021.

Houseprices and new buyers
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