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.

December 6, 2023

MSLH, FERG, CRN, CREI | Economics – Construction activity declines for third month; House prices to fall 1% in 2024, Rightmove | News – The best of places, the worst of places

Company news

Marshalls (MSLH, 248p, £628m mkt cap)

Leading manufacturer and supplier of paving and hard landscaping products. CEO succession. Matthew (Matt) Pullen appointed CEO Designate, to succeed Martyn Coffey in due course. He will join the Board from 8 January and will take over as CEO from 1 March. Mr Coffey will step down from the Board on 29 February, but will remain available as an adviser to support the transition during 2024. Mr Pullen’s most recent role was COO of Genuit Group (GEN).

Ferguson (FERG, 13,865p, £28,214m)

Now entirely North American-focused building materials distributor, formerly Wolseley. Q1 (Oct) results, reported 11:45 yesterday. Rev -2.8%, $7,708m; adj op profit -10.5%, $773m; stat op profit -11.1%, $739m; adj op margin, 10.0% (Q1 22, 10.9%); adj dil EPS -10.2%, $2.65; Q1 div +5%, $0.79; net debt, $3,018m ($3,180m); net debt/adj EBITDA, 1.0x (1.0x).

Trading: US net sales -2.7%, $7,329m; Canada -5.0%, $379m. US: “Residential end markets, which comprise just over half of US revenue, remained subdued. New residential housing start and permit activity was relatively stable on a sequential basis but remains below prior year levels, while RMI work continued to show greater resilience. Overall, residential revenue declined by approximately 7% in the first quarter. Non-residential end markets, showed sequential stability with non-residential revenues growing by approximately 2% in the first quarter. Commercial and Industrial activity held up well in the quarter and we have continued to see good levels of megaproject related bid activity”.

Outlook: “The year has started in line with our expectations … delivering solid results with continued market outperformance against a challenging backdrop. Our FY24 financial guidance is unchanged and our balanced end market exposure positions us well to leverage emerging multi-year structural tailwinds such as non-residential megaprojects. We remain confident in the strength of our markets over the medium and longer term and expect to capitalize on attractive growth opportunities”.

Cairn Homes (CRN, 107p, £704m)

Leading Irish housebuilder. Commencement of extended share buyback programme. €35m extension to its ongoing share buyback programme increasing the total size to €75m.

Custodian Property Income REIT (CREI, 87p, £385m)

UK commercial real estate investment trust. FY (Sep) results. EPRA EPS +3.6%, 2.9p; stat EPS -0.6p (-3.2p); div unch, 2.75p; EPRA TNAV -16%, 423p; net gearing, 29.6% (25.5%); portfolio value, £610m (£685m).

Trading: Portfolio valuation decrease of £15.6m “driven by current investor and market sentiment around the UK’s economic outlook and high interest rates”, offset by a £6.1m uplift from asset management initiatives. £12.2m invested primarily in the refurbishment and redevelopment of seven properties, “expected to enhance the assets’ valuations and environmental credentials and, once let, increase rents to give a yield on cost of more than 7%, ahead of the company’s marginal cost of borrowing”.

Outlook: “Negative sentiment towards real estate investment is currently weighing against capital performance.  This is driven primarily by the potential for persistent inflationary pressure to mean ‘higher-for-longer’ interest rates, uncertainty around the future of offices and the impact of the UK’s general economic outlook on discretionary consumer expenditure.  However, there is depth in occupational demand and latent rental growth in the portfolio which offers the prospect of growth for existing shareholders, as sentiment improves towards the sector and gives us confidence that the company will continue to perform well”.

Economic data

Construction activity. UK construction companies reported a third consecutive month decline in business activity during November, led by a continuing fall in residential building, according to today’s Construction PMI report from S&P Global and CIPS UK. The headline PMI – a seasonally adjusted index tracking changes in total industry activity – registered 45.5 in November, down fractionally from 45.6 in October and below the 50.0 no-change value for the third month running. The latest reading was the second-lowest since May 2020 and signalled a marked reduction in total industry activity. House building (index at 39.2) remained the weakest sector, with respondents reporting a general slowdown in activity due to unfavourable market conditions. While still below 50, signalling M/M declines, the house building index was marginally up on the 38.5 in October, indicating a moderating rate of decline. Civil engineering (43.5) also edged up from the 43.7 previously. Commercial was more resilient, but at 48.1, from 49.5, with firms noting economic concerns and delayed decision-making by clients on major investment spending. However, expectations for the year ahead picked up from October’s recent low, but remained notably weaker than seen in the first half of 2023. Concerns about the near-term demand outlook contributed to a renewed decline in staffing numbers during November and a marked reduction in purchasing activity. A combination of greater price competition among suppliers and falling raw material costs contributed to another decrease in input prices across the construction sector. The overall rate of decline was the steepest since July 2009, with survey respondents reporting falling prices paid for a range of materials (especially steel and timber).

2023-12-06 Construction PMI report

House prices forecast. Righmove has predicted that new seller asking prices will fall by 1% by the end of 2024 2 “as the market continues its transition to more normal levels of activity following the frenetic post-pandemic period” (published Monday). The UK’s leading property portal expects sellers to price more competitively to secure buyers, amid “significantly more choice for buyers, but no glut of homes for sale. Mortgage rates will settle but remain elevated, tempering some buyers’ budgets, especially in the lower and middle market sectors. Rightmove’s forecast is based on its whole of market data and house price predictive model using millions of supply, demand and pricing data, along with insights from estate agents and a panel of Rightmove experts. A year ago, Rightmove predicted average new seller asking prices would drop by 2% in 2023, and they are currently 1.3% lower year-on-year.

In other news …

Housing market. The London Borough of Richmond upon Thames has been named the happiest place in the UK to live in Rightmove’s annual ‘Happy at Home’ survey – the first time an area in the capital has taken the top spot. The city of Winchester in Hampshire is second, and Monmouth in Wales is third. According to the national survey of local residents indicate that “the most important contributors to happiness were feeling a sense of pride, belonging and community. Access to green space and nature is also important to residents, with those living in a rural area near a national park, or an Area of Outstanding Natural Beauty, more likely to feel happy where they live”. (For the record, and not emphasised in Rightmove’s press release, the nearby western London borough of Hillingdon is worst, at number 218 in the rankings …)

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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