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 12, 2024

PSN, COST, GEN, RGL

Company news

Persimmon (PSN, 1,375p, £4,390m mkt cap)

UK number three housebuilder by volume, top by market cap. FY (Dec) results. Completions -33%, 9,922; prices +2.9%, £255.8k; rev -27%, £2.77bn; u-lying op margin 14.0% (FY 22, 27.2%); u-lying PBT -65%, £359m (before £7.6m intangibles; FY 22, £6.6m intangibles, £275m legacy buildings provision); u-lying EPS -67%, 82.4p; div unch, 60p; TNAV, £3,253m (£3,266m); net cash, £420m (£862m).

Trading: Private sales rate, 0.58 per site per week (0.69) (Q1, 0.62; Q2, 0.58; Q3, 0.48; Q4, 0.69). Sales outlets 266 (259). Land holdings -5.7%, 82,235. “Completions ahead of our initial guidance with strong delivery in Q4. Private ASP held up well with some softening in second half, reflected in forward order book pricing. Underlying operating profit and margin impacted by lower volumes, build cost inflation and mix as expected. Successfully controlled WIP investment to match demand, without compromising on investment for future growth.

Outlook: Sales rate, first 10 weeks of FY 24, 0.59 (0.54); excluding bulk sales, 0.53 (0.54). “We have started the year in line with expectations, with our recent marketing campaign generating a significant number of leads for our sales teams. Trading in the southern and eastern counties remains more challenging with weaker pricing, offset by a more robust trading performance in the northern regions. Market conditions are expected to remain subdued throughout 2024. However, we are well placed to manage this and are positioning the business for sustainable future growth over the medium-term. We remain on track to open a gross new 30 outlets for the spring selling season as we work towards growing our outlet base back to over 300 open outlets over the medium-term. Overall, we expect to deliver between 10,000 and 10,500 completions for 2024. We anticipate transitioning from an average net cash to an average net debt position through 2024, resulting in an estimated net finance charge of approximately £15 – 20m for 2024. We currently anticipate our net cash to be between zero and £200m as of 31 December 2024. The longer-term fundamentals for the housing market remain positive. Our focus on maintaining a robust balance sheet while investing for growth gives us confidence in our ability to generate strong cash generation and industry-leading returns over the medium-term”.

Costain Group (COST, 68p, £188m)

UK construction and infrastructure services group. FY (Dec) results. Rev -6.3%, £1,332m; adj op margin, 3.0% (FY 22, 2.6%); adj PBT +29%, £44.2m; stat PBT -5.8%, £30.9m (inc previously announced £5.3m impairment for exiting digital hardware manufacturing and £6.2m costs to group transformation programme); adj EPS +23%, 12.2p; div, 1.2p (0p); net cash, £164m (£124m) “reflecting increased operating cashflow and financial income, together with positive working capital movements”.

Trading: Transportation division – rev -9.9% “reflecting growth in Rail, lower volumes in Road due to the impact of the rephasing and rescoping of some contracts”; adj op margin, 3.0% (3.0%) “as overall operating performance offset inflation and cost pressures impacting margins in Road”; adj op profit -11%, £28.0m. Natural Resources – rev +3.7%, £389m “driven by Defence, Nuclear Energy and Water”; margin, 5.6% (4.0%) “due to an improved operational performance as well as revenue growth”; profit +45%, £21.8m.

Outlook: Order book of £2.1bn (£2.8bn), “reflecting the procurement periods in our chosen markets, continued disciplined approach to contract bidding and the rephased timing of certain major contract tenders.  Our expectations for further progress in 2024 remain unchanged. We remain on track to deliver an adjusted operating margin run-rate of 3.5% during the course of FY 24 and 4.5% during the course of FY 25, in line with our ambition to deliver margins in excess of 5.0%”.

Genuit Group (GEN, 402p, £1,002m)

Manufacturer of sustainable water, climate and ventilation products for the built environment, formerly Polypipe. FY (Dec) results. Rev -5.7%, £587m; u-lying op margin, 16.0% (FY 22, 15.8%); u-lying PBT -11%, £80.5m; stat PBT +6.6%, £48.4m (FY 23 adj items inc £14.8m intangibles, £15.3m restructuring); adj EPS -18%, 25.2p; div +0.8%, 12.4p; net debt, £149m (£166m).

Trading: Sustainable Building Solutions rev -14.1%, “while underlying operating profit margin improved, driven by business simplification projects”. Water Management Solutions rev -1.2%, “but with a stronger second half performance and business simplification projects driving an improvement in operating profit margin”. Climate Management Solutions rev +4.6% “with strong residential ventilation growth offsetting continued weakness in the boiler market. Underlying operating margin was lower but improved in H2 versus H1. International rev +9.8%, representing 11.5% of revenue in the year (9.9%).

Outlook: “Trading for 2024 has started in line with our expectations, despite continued market uncertainty. Current softness in UK construction expected to continue but will vary by end market. Given the strategic and operational progress made in 2023, the group is in a strong position to navigate the near-term market headwinds and benefit from eventual market normalisation. The group remains confident in the medium-term growth drivers including demand generated by addressing the structural UK housing shortage, as well as regulatory changes and increasing customer demand for sustainability-linked solutions in both water and climate management”.

Regional REIT (RGL, 20p, £104m)

Real estate investment trust specialising in income generating regional UK office and industrial assets. Response to press speculation. “Further to the Q4 trading update on 2 February 2024 and the dividend declaration announcement on 22 February, Regional REIT notes the recent press speculation regarding the possibility of the company undertaking an equity capital raise of around £75m. As indicated in the previous announcements, the company is actively exploring a range of refinancing options, including debt and/or equity, in respect of the existing £50m retail bond given its maturity date in August 2024. The company confirms that significant preparatory work has been undertaken to date in respect of both the debt and equity options, which remain under active consideration. In the event that the company proceeds with an equity issue, the company expects that it would be at a material discount to the current share price and would be subject to, amongst other things, shareholder approval”.

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