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.

<< Back to Property & Construction Daily archive

May 2, 2024

MGNS, GLV, KINO, GFTU, SHI, LORD | Research – Housebuilders back searching for prime sites

Company news

Morgan Sindall Group (MGNS, 2,270p, £1,082m mkt cap)

Construction, regeneration and fit-out group. AGM. Guidance: “Trading since the start of the year has been as expected and based on its high-quality secured order book for the rest of the year, the group is confident of delivering a full year performance which is in line with its expectations”. Orders +1%, £9.0bn. The ave daily net cash, 1 Jan – 30 Apr, £389m (same period FY 23, £281m); FY 24 anticipated to be “well in excess of £300m” [previous guidance “in excess of £300m”]. Trading: Construction and Infrastructure – “both performed as expected, underpinned by their continued focus on long-term client relationships, disciplined contract selectivity, risk management and project delivery”. Fit Out – “trading has been very strong. First half performance is expected to show significant growth on the prior year and its secured order book provides confidence for the rest of the year”. Property Services – “Underlying operational performance has been as expected, however its first half result will also be impacted by exit costs relating to an underperforming contract”. Partnership Housing – “Benefited from the improved housing market since the start of the year, with a higher level of sales activity across both mixed-tenure and contracting driving the expected improvement in performance compared to the prior year”. Ave capital employed for FY estimated at c. £330m, “higher than previous guidance, as the business invests in its partnerships for future growth”. Urban Regeneration – “As expected, there has been a lower level of scheme completions compared to prior years and its full year performance is anticipated to be significantly weighted towards the second half”. Ave capital employed for the year, c. £90m. Viewpoint: There is much reporting in the trade press focusing, it appears, on just how increasingly grim the contracting sector is becoming, with multiple company failures. Morgan Sindall keeps on proving how it need not be like that. Dare I say it, it’s not that complicated: work only with reliable, long-term clients; avoid risky contracts and conditions; and concentrate on cash, cash, cash …

Glenveagh (GLV, €1.26, £625m)

Irish housebuilder and partnership housing provider. AGM. Guidance: “We continue to anticipate an EPS outturn for FY 2024 of approximately 17 cents”. Trading: Forward order book +20%, €963m. 1,440 suburban units are now either sold, signed or reserved for FY 24, compared to 1,106 units at the end of February 2024. “Strong reservation trends continued in our Suburban business segment, reflecting healthy underlying private market demand supported by a durable domestic economy, the range of Housing for All initiatives, and further underpinned by the structural undersupply of high-quality, affordable housing in Ireland”. Contracted urban projects proceeding as planned and are expected to deliver approximately 650 units this year. Partnerships business segment on track with ongoing construction at our Ballymastone and Oscar Traynor Road developments. We are also in advanced negotiations on a third partnerships agreement. Outlook: “Strong planning momentum has continued, with permissions granted for over 1,000 units so far in FY 24. We are also on track to lodge planning applications for over 2,000 units over the course of this year, underpinning unit delivery in FY 25 and beyond”.

Kinovo (KINO, 41p, £26m)

Property services provider, formerly Bilby, specialising in compliance and sustainability. FY (Mar) trading update. Guidance: “Results for the continuing business in FY 24 to be ahead of prior expectations”. Adj EBITDA +23%, £6.7m and ahead of prior management expectations of £6.2m, as disclosed on 9 February. Rev +2.1%, c. £64m, “reflecting a different revenue mix of projects contracted in the year and including the strategic exit from a private sector mechanical contract amounting to £3.6m. As previously highlighted, certain planned workstreams in FY 24 have experienced some client related administrative delays and are therefore now expected to be delivered in the year ahead”. Discontinued – DCB Kent “has achieved practical completion on a further four sites, concluding a total of seven of the nine projects. Timings for the statutory gas connection of the penultimate site has now been confirmed and will therefore be due to complete by early July 2024 with Kinovo remaining in discussions regarding the final project (due to complete in 2026). The anticipated financial liabilities for DCB remain in line with that disclosed on 8 March”. Outlook: “Our FY 24 performance proves again the robustness and resilience of the group and, with the residual legacy issues of DCB closer to being completed, we remain focused on capitalising on further growth opportunities and maximising shareholder value creation”.

Grafton Group (GFTU, 938p, £1,879m)

UK, Irish, Dutch builders’ merchant and products group. AGM. Guidance: “Trading in the period continued to be challenging in most of our markets and revenue trends were also impacted by price deflation and exceptionally wet weather in Ireland and the UK. Looking ahead, whilst we are not expecting a sustained recovery in our markets in the short term, we do expect profitability to be slightly more weighted than usual to the second half”. Trading: Group rev, -5.0% (-4.5% LFL; inc UK -8.0%, Ireland +0.6%, Netherlands -2.8%). “In Ireland, Chadwicks encountered materials price deflation of c. 6.0% but continued to benefit from an improving trend in volumes and a favorable macroeconomic backdrop.  The provision of housing remains a public policy priority with Ireland’s new Taoiseach raising the build target for new homes over the next five years to 250,000 which compares to 32,700 new home completions in 2023. Demand conditions in the UK RMI market remained weak with materials price deflation of c. 3.5% and adverse weather conditions also contributing to the decline in revenue”. Outlook: “We remain focused on investing in our brands and maintaining tight control of costs.  We are confident in the underlying demand fundamentals and the medium-term outlook for our markets and on the opportunities provided by our cash generative business and a healthy balance sheet”. Viewpoint: Both Gleveagh (above) and Grafton highlight the Irish Government’s ambitions to boost housdebuilding. It will be interesting to track how successful they are compared with the UK’s feeble attempts to set its own delivery targets.

SIG (SHI, 26p, £309m)

Supplier of energy efficiency and specialist building materials to trade customers across Europe. AGM. Guidance: “2024 full year profit outlook remains unchanged, with an expectation of an H2 weighting”. Trading: Group rev -6% LFL amid “continuing challenging market conditions, reflecting both volume and price reductions”. UK rev -8% LFL; EU -6%. “Weak demand has been a factor in all of the group’s markets.  Encouragingly, the benefit of ongoing commercial and modernisation initiatives is enabling most of our businesses to outperform local markets, with particularly strong relative performance in UK Exteriors, Germany and Poland.  In UK Interiors, two strategic branch closures early in the year affected the LFL growth by about 3% in the period. Whilst there remain pockets of inflation on input costs, these have been more than offset by deflation in certain geographies and categories, as well as pricing pressure in the market, contributing to a net c. 3% reduction in pricing”. Outlook: “We remain confident in our ability to manage through this current phase of the cycle and to ensure that we are more than ready to take advantage of the significant opportunities for the group as markets recover”.

Lords Group Trading (LORD, 48p, £79m)

Building materials distributor. Extension group’s existing £95m lending facilities. The facilities, which consist of a £70m RCF and a £25m receivables financing facility, were announced on 6 April 2023; the RCF has now been extended from its initial three-year term by 12 months and will now expire on 5 April 2027. These “provide support for Lords’ medium term growth ambitions, particularly our M&A strategy, and demonstrate the confidence our lending partners have in the prospects of the group”.

Economic research

Residential land. The land market has stabilised and both housebuilders’ land buying and house starts are likely to rebound in Q2, according to Knight Frank’s Residential Development Land Index for Q1. It also highlighted a growing crisis in power capacity holding back site openings. The agent’s survey of 50 housebuilders, which build 70,000 homes pa, found that nearly half of respondents were the most active group in their regions. Conversely, housing associations have significantly cut their land-buying, with c. 10% saying this group was the most active in the local land market for the past two quarters, down from around 20% for Q1 – 3 2023. Half of respondents saying that start volumes will increase in Q2, the strongest reading since the survey began in early 2021.  Land prices have broadly stayed flat. Highlighting growing anecdotal comment in the industry, a third of survey respondents said a lack of power capacity in the National Grid has affected the progress of housing schemes in the region they operate in. Around 15,000 of their new homes are currently held up by a lack of grid connections. In further comments, some respondents reported difficulties with utility firms delivering connections in a timely manner which they said is causing them problems with plot handovers and costing thousands of pounds in temporary connections or portable generators. Viewpoint: It’s all kicking off – a view shared in my latest Property Week column (which mentions the KF research), below …

02.05.24

In other news …

One missing word in Taylor Wimpey’s trading update last week confirms that housebuilders are ‘flocking’ back to the land market – possibly the best barometer of housing market conditions – and look likely to be increasing starts during the current quarter. My latest Property Week column, Timing’s everything in the land market (paywall):

“Observing housebuilders’ forays into and out of the land market down the years has been like watching sheep running along hillsides. Nothing wrong with that: the timing of their volte-faces is invariably the best barometer of housing market outlook – and it looks like the stampede to buy at least the best sites is back on again.”

 

Prices are as at the previous day’s close. Where quoted, net debt is pre-IFRS16 (excluding leases) unless otherwise stated.

Download Insight as PDF

This communication is provided for information purposes only, and is not a solicitation or inducement to buy, sell, subscribe, or underwrite securities or units. Investors should seek advice from an Independent Financial Adviser or regulated stockbroker before making any investment decisions. Progressive Equity Research Ltd (“PERL”) does not make investment recommendations.

Opinions contained in this communication represent those of PERL and/or our affiliates at the time of publication and PERL does not undertake to provide updates to any opinions or views expressed. PERL does not hold any positions in the securities mentioned in this communication, however, PERL’s directors, officers, employees, contractors and affiliates may hold a position,  and/or may perform services or solicit business from, any of the companies or related securities mentioned.

Any prices quoted in our research are as at the previous day’s close.