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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March 18, 2024

MSLH, SRC, MRL, BLND, SHED, API, CREI | Economics – House prices and demand bounce, Rightmove

Company news

Marshalls (MSLH, 291p, £717m)

Leading manufacturer and supplier of paving and hard landscaping products. FY (Dec) results. Rev -7%, £671m; adj PBT -41%, £53.3m; stat PBT -40%, £22.2m; adj EPS -47%, 16.7p; divs -47%, 8.3p; net debt, £173m (FY 22, £191m).

Trading: Marshalls Landscape Products – rev -18%, £322m; op profit -53%, £21.3m. “Whilst commercial and infrastructure remains robust, the business has been impacted by lower new build housing and continued weakness in private housing RMI driven by the discretionary nature of the segment’s domestic products, weak consumer confidence, product price inflation and lower real incomes”. Marshalls Building Products – rev -12%, £170m; op profit -54%, £12.2m. “The exposure of this segment to new build housing had an impact on its performance during the year.  All business units within this reporting segment were affected by weak demand during the year, with the slowdown in activity impacting Bricks and Masonry and Mortars and Screeds in the second half of the year as new build housing volumes progressively slowed”. Marley Roofing Products (acquired 29 Apr 2022) – rev +36%, £180m (-9% LFL); op profit +31%, £44.9m (-12% LFL). “Weaker volumes of traditional roofing products were partially offset by revenue growth from Viridian Solar, which benefitted from the trend towards energy efficient solutions and changes to building regulations.  The rate of contraction was more modest than the other reporting segments due to the less discretionary nature of the RMI activity that uses its products”.

Strategy: “Decisive action was taken to right size manufacturing capacity and the cost base, resulting in annualised savings of £11m, with around 40% delivered in 2023. Flexibility was maintained in the manufacturing network in order to respond rapidly to deliver higher volumes when markets recover”.

Outlook: “Revenue in the first two months of the year was lower than 2023 and reflects the continued weakness seen in the second half of last year. In line with recent sentiment of UK economic and industry forecasts, the Board expects activity levels to remain subdued in the first half of the year followed by a modest recovery in the second half as the macro-economic environment progressively improves.  The start of this recovery is now expected to be slower and more modest than previously assumed. Therefore, the Board believes that revenues in 2024 will be lower than previously expected and that profit will now be at a similar level to 2023. With clear long-term structural growth drivers and attractive market growth opportunities, the group is well positioned for relative outperformance in the medium-term, and this will underpin a material improvement in profitability as end markets recover.

SigmaRoc (SRC, 68p, £751m)

Heavy construction materials group active in the UK, Channel Islands and Benelux. FY (Dec) results. Rev +8%, £581m; u-lying EBITDA +15%, £117m; u-lying PBT +14%, £71.2m; stat PBT -42%, £28.3m; u-lying EPS +1% 8.1p; divs, 0p (0p); net debt (inc leases), £182m (FY 22, £194m); leverage, 1.57x (1.93x).

Trading: “Trading resilience, efficiency gains and value-accretive acquisitions combined to deliver record earnings performance, ahead of original expectations [consensus – rev, £597m; EBITDA, £110m; 7.5p]. LFL revenue grew by 2% despite a 4% volume decline, reflecting the group’s strong market position, pricing power and differentiated operational model with diversified end markets. Subdued demand in residential construction markets was partially offset by a stronger backdrop for infrastructure projects and industrial markets. Dynamic pricing largely offset the impact of inflation through the year”. The group entered into agreements in November 2023 to acquire CRH’s European lime and industrial limestone assets, “transforming the Group into a leading European producer”.

Outlook: “Trends from 2023 are expected to persist into 2024, with strong infrastructure and industrial markets and subdued residential construction. Trading for the first two months of the year in-line with expectations, hence the Board’s outlook for FY24 remains unchanged. Integration of CRH European lime and industrial limestone assets is progressing well and the Board is confident that once integrated, the group will begin delivering previously outlined synergies, enhancing cash flows, and reducing leverage”. AGM, 12 April.

Marlowe (MRL, 359p, £361m)

Safety and compliance provider to commercial properties. Board changes and update on returns of capital. Lord Ashcroft appointed as a non-executive director. Charles Skinner today stepping down from the Board, having been in role since the company’s formation, to be replaced by a new independent non-executive director in due course. Following the divestment of Governance, Risk & Compliance (“GRC”) software and services assets (the “Divestment”) for an enterprise value of £430m, net sale proceeds are expected to be c. £405m and net cash is expected to be c. £220m. “The group is minded to retain a net cash balance to provide resources for working capital and selected investments and to return in excess of £150m of remaining net cash to shareholders. The Board is assessing the optimal route through which to effect the return of capital and will confirm the return in due course”.

British Land Company (BLND, 368p, £3,435m)

Leading UK commercial property investment, development and services group. Formation of JV. New 50:50 joint venture formed with . Royal London Asset Management Property to accelerate the delivery of 1 Triton Square into a science and innovation building at Regent’s Place. The agreement values the property at £385m. “The new JV will combine British Land and Royal London Asset Management’s development and asset management capabilities to deliver a world class science and innovation building. The design is highly flexible, offering a mix of fitted and lab-enabled space as well as the potential to incorporate serviced offices to accommodate flexible requirements at the lower levels, whilst retaining best in class office space on upper floors”. 1 Triton Square is located in the heart of the Regent’s Place campus within London’s Knowledge Quarter, which is home to leading research institutions including The Francis Crick Institute, The Wellcome Trust, The Alan Turing Institute and University College London.

Urban Logistics REIT (SHED, 117p, £557m)

Specialist UK ‘last mile’ logistics real estate investment trust. Update on Urban Logistics’ evaluation of abrdn Property Income Trust (API, 53p, £204m). “Further to API’s announcement of 14 March, Urban Logistics sets out an update on its evaluation of API, further information on an alternative proposal already submitted to the Board of API and the views of the Board of Urban Logistics as to why this proposal constitutes a superior proposition for the API shareholder body as a whole amongst the alternatives being reviewed by the Board of API. The Board of Urban Logistics urges API shareholders to vote against the Custodian [Property Income REIT] (CREI, 71p, £314m) offer and to encourage their Board to re-consider the Urban Logistics Proposals”.


Economic data

Housing market. Asking prices for newly marketed properties have risen by 1.5% M/M in March, higher than the historic average March increase of 1.0% and the biggest for 10 months, according to the latest House Price Index from Rightmove. The average price is now to £368,118 (below, left), +0.8% Y/Y, following rises of 0.9% M/M and +0.1% Y/Y recorded in February. The number of sales being agreed is now 13% higher than at this time last year and buyer demand is now 8% above last year: “With average asking prices still £4,776 below the May 2023 peak, more are seeing a window of opportunity to buy. However, despite a better-than-expected start to the year, the market remains sensitive to pricing and external events”. Rightmove’s real time data indicates the growth in buyer demand was tempered somewhat by a “lacklustre” Budget, “with no direct help for first-time buyers or mortgage market innovations”. The average time to find a buyer in February 71 days vs 57 in the same month last year and the longest at this time of year since 2019 (London, 73 vs 70). “Higher activity at the start of this year compared to last year must also be looked at in the context of the more cautious start to 2023. Rather than the start of another market surge, the signs are that overall activity levels have now returned to steadier pre-pandemic norms”. The gap in the estimated cost of buying and renting has continued to narrow (below, right).

Average asking price trend
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