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.

October 10, 2023

PRSR, SDY | News – Labour to pledge 1.5 million homes

Company news

The PRS REIT (PRSR, 66p, £364m)

Real estate investment trust investing in private rental sector (PRS) family homes. FY (Jun) results. Rev +18%, £49.7m; PBT -63%, £42.5m; EPRA EPS +3%, 3.1p; div unch, 4.0p; EPRA TNAV +3%, 120p; EPRA LTV, 37% (FY 22, 34%).

Trading: Number of completed homes +6%, 5,129; net rental income +17%, £40.2m; rent collection, 99% (99%); occupancy, 97% (98%). Decrease in operating profit “reflects the lower gains from fair value adjustments on investment property compared to the prior year – £25.4m vs. £99.7m … more than offset by the increase in ERV”. Average net investment yield, 4.47% (4.13%).

Outlook: “We are well-advanced in the delivery of an initial portfolio of around 5,500 homes, providing over £1bn of assets with an anticipated rental income stream of over £60m a year. Our model is highly resilient. Prospects are very positive. The structural shortage of high-quality rental homes in the UK and rising demand place the company in a strong position. Our high-quality, professionally-managed, single-family rental homes are helping to fix an urgent social problem”.

Speedy Hire (SDY, p, £m)

UK and Ireland tool, equipment and plant hire services provider. HY (Sep) trading update and acquisition.

Guidance: “The performance in the first half has been satisfactory with revenue from national customers growing 5% on last year. This has been offset by some softening of revenues with our regional customers. We have seen recent improvement in both of these areas. As in prior years, the group expects a second half weighting to its hire revenues and profits, as the winter programmes commence and new contracts extended and won fully mobilise in the period. In addition, Speedy has a strengthening pipeline of new opportunities going into the second half.  Consequently, the group anticipates full year performance to be in line with expectations. Velocity, the company’s five year transformation and growth strategy, was launched  earlier in the year and is progressing well”. Service revenues are expected to be lower, primarily due to the decline in the wholesale price of fuel, down c. 20% Y/Y. This has not materially impacted margin, as direct costs fall proportionately. The recently communicated intention to form a joint venture with AFC Energy PLC (AFC) to support customers in decarbonising their power and energy solutions by transitioning to hydrogen fuel generation remains on track. Net debt, c. £90m, “an improvement on the FY23 year-end position”.

Acquisition: Sustainable power solutions specialist, Green Power Hire acquired from its principal shareholder, Russell’s (Kirbymoorside) and four other shareholders for an enterprise value of £20.2m, of which, £10m equity value and assumed debt of £10.2m. The acquisition is expected to be accretive to underlying earnings in the first full year of ownership, with ROCE also exceeding the group’s cost of capital. For the year ended 31 October 2022, GPH generated unaudited revenues of £0.4m and a loss before tax of £0.2m. For the ten months ended 31 August 2023, unaudited revenues were £5.9m, the business was profitable, and it had unaudited gross assets of £12.5m. GPH is a leading owner and supplier of battery storage units to the rental market, mainly to the construction sector. “The acquisition will enable the continuing rapid development of GPH’s business, with access to Speedy’s broad customer base, asset rental expertise, data and AI capabilities and investment in expanding the number of BSU’s.  GPH will also benefit from operational and scale efficiencies as part of the Speedy Group”. HY results, 22 November.

In other news …

Politics. Labour leader Sir Kier Starmer is poised to announce at today’s conference that the party would build 1.5 million homes, including a swathe of ‘new towns’, if it gains power, Daily Mail. Dozens of sites are already being considered under the policy, amid reports that the M1 corridor and land around Cambridge would be earmarked. State-backed companies will be given compulsory purchase powers (CPOs) to acquire land but, according to previous reports in May, at prices closer to current-use rather than at full housing values. Equally controversial, Labour will consider ‘low-quality’ green belt sites such as scrubland and car parks should be tagged as ‘grey belt’. Earlier today Labour frontbencher Pat McFadden said Britain is “a country where it takes too long to build things… we’re going to have to make building things in this country a quicker process”. Developers will get ‘planning passports’ allowing them to build on brownfield land, with a “stronger presumption in favour of permission”. Yesterday Deputy Leader Angela Rayner focused on social housing, saying Labour would oversee the biggest boost in affordable and social housing delivery “in a generation” and crack down on developers trying to “wriggle out of their responsibilities”, Building (paywall). Rayner, also shadow housing secretary, said the party would give elected local leaders new powers to “stand up to vested interests” in building new schemes with a specialist government ‘take back control’ unit. The unit will advise councils and housing associations on how to negotiate with developers to ensure affordable housing obligations are met. It also would publish guidance that would, in effect, limit companies to challenging these requirements only if there were genuine barriers to building homes. Currently, developers often successfully negotiate lower percentages of affordable homes in developments by arguing schemes would be unviable otherwise. Labour says it would also make it easier for councils to use right-to-buy funds to build new homes. The party would allow councils and housing associations to use a greater proportion of the grant funds they receive on buying housing stock, which they would then rent out as affordable homes. Rayner criticised current housing secretary Michael Gove for handing £1.9bn in housing funds, including £255m of affordable housing funding and £1.2bn of Help to Buy receipts, back to the Treasury after failing to spend it in the 2022-23 financial year.

Viewpoint: Labour, with Lisa Nandy heading the housing brief, has for many months been cozying up to a largely receptive housebuilding sector. It is telling that Sir Keir is predicted to focus on housebuilding in his headlining conference speech, whereas (unless I missed it) PM Rishi Sunak did not mention the word once in his last week. Labour have laid their colours out, but with the arguably more left-leaning Rayner replacing Nandy, there is more of a hard line emphasis on affordable housing and less emollient language regarding private developers. As to CPOs at current use values, it’s probably the single most important missing piece in the social housing economic jigsaw, but expect the mother of all battles, site by site, with land owners stripped of ‘hope value’ …

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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