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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April 25, 2024

PSN, IBST, TPK, LSL, DRV, WHR

Company news

Persimmon (PSN, 1,292p, £4,130m mkt cap)

UK number three housebuilder by volume. AGM/Q1 (Mar) trading update.

Guidance: “We are encouraged by the level of visitors to our sites and are making good progress in expanding our outlet network. As previously noted, first-half performance will be subject to embedded build cost inflation and lower average selling prices, as reflected in the forward order book at the start of the year. This trend is expected to reverse in the second half, given the increase in the average selling price in the current forward order book and broadly neutral build cost inflation since the start of the year. We continue to expect growth in full year 2024 completions to between 10,000 and 10,500 completions with an operating margin in line with the prior year”.

Trading: Completions -10% Y/Y, 1,027 (Private -6%; Partnerships -25%). Private sales rate, exc bulk sales, 0.61 per site per week (Q1 23, 0.58); first 10 weeks, 0.53 (0.54). Fwd sales volume -5%, 7,792 (Private +15%, 4,030; Partnerships -20% 3,762); value +4%, £1.75bn. Overall pricing on reservations “held firm”, with incentives currently running around 4 – 5% on average. 28 gross outlets opened with period-end at 263 outlets, +2% YTD. A further c. 30 gross outlets are planned to open by the end of June as part of aim to build back to pre-Covid outlet levels over the medium term.

Viewpoint: The incremental increase in sales per site from the week 10 point to the end of the quarter and steady increase in sites tallies with what other major housebuilders  have been saying (echoed by LSL, below). This bodes well for early trades (such as civil engineering specialists) and materials (including bricks and blocks, referred to in Ibstock’s update).

Ibstock (IBST, 150p, £601m)

UK’s largest brickmaker. Q1 (Mar) trading update.

Guidance: “Trading conditions remained challenging in the first quarter. Against this background, adjusted EBITDA for the period was in line with our expectations, supported by our disciplined action on costs and strong operational execution. While we expect market demand to remain subdued in the near term, lead indicators reflect an increase in housing market activity, which offers encouragement for an improvement in volumes in due course.

Trading: “Conditions in the first quarter remained challenging, with activity levels across residential construction markets remaining subdued. As a result, sales volumes were below our expectations, in part reflecting the exceptionally wet weather experienced across the UK during the early months of the year. We are encouraged by recent lead indicators which suggest some improvement in future demand. Our major capital projects are on track with commissioning of the new Atlas factory and the first phase of the brick slip systems investment in Nostell progressing well”.

Outlook: “Our medium-term prospects remain strong, underpinned by our robust balance sheet, well invested manufacturing network and leading market positions. We have the capability to take advantage of opportunities against the current subdued backdrop, and the business is well placed to achieve strong, profitable growth as our markets recover”.

Travis Perkins (TPK, 713p, £1,514m)

Leading UK builders’ merchant and owner of Toolstation.

Trading: Rev -4.9% (LFL -3.7%, of which Merchanting, -4.2%; Toolstation, -0.9%). “As anticipated, trading remained challenging as macroeconomic uncertainty continues to impact demand across the construction sector. The General Merchant business continues to gain market share. Pricing has largely stabilised but remains lower than prior year, primarily due to the rollover impact of timber deflation, with this trend expected to continue through the first half of the year. Toolstation UK, facing into weak RMI demand, saw revenues decline. The business remains focused on delivering long-term loyalty and sustainable value leadership whilst driving benefits from recent infrastructure investment. Following the delivery of £35m of cost savings from a reduction in regional and central headcount, work continues to address loss-making activities within the group’s portfolio and to access longer-term structural benefits. These will be achieved through the simplification of the operating model, reducing supply chain costs and harnessing the benefits from new technology”. HY results, 6 August.

LSL Property Services (LSL, 270p, £281m)

Estate, lettings and property/financial services agent. FY (Dec) results. Rev -34%, £144m; u-lying op profit -66%, £10.3m; stat PBT, £4.9m (FY 23, £23.8m loss); adj EPS -72%, 7.6p; div unch, 11.4p; net cash, £35.0m (£40.1m). “Following a positive final quarter of 2023, the preliminary results are slightly ahead of expectations”.

Strategy: Conversion of entire owned estate agency network to franchisees, now in 308 territories. The sale of four direct-to-consumer financial service advice businesses was completed in April 2023 to Pivotal Growth, the group’s JV with Pollen Street Capital. LSL’s Financial Services core activities are now focused on business-to-business services; acquisition of TenetLime mortgage network; disposal of the Marsh & Parsons London estate agency brand, which did not fit into our overall franchising strategy. Completion of these projects means that the group’s annualised cost base has been reduced by £140m representing 50% savings on an annualised basis.

Outlook: “Momentum has continued to build further in 2024, particularly in our Surveying & Valuation Division. Over the first quarter, underlying operating rofit was materially above the same period in 2023, reflecting the benefits of the transformation programme completed in 2023 as well as improving market conditions. The continued strong performance since our recent trading update on 6 March has reinforced the Board’s confidence, and our expectations for full year underlying operating profit have increased again”.

Driver Group (DRV, 26p, £14m)

Legal claims, dispute resolution and expert witness consultancy to the global construction and engineering industries. HY (Mar) trading update.

Guidance: Rev -7.0%, £22.5m; u-lying PBT -14%, £0.6m. “Our strategy is delivering improved performance in both APAC and the Middle East which have both returned to profit. Management have acted promptly in resolving the challenges in North America, and our UK and European regions continue to perform well. We believe the group is therefore well placed to move forward positively into H2”. Net cash, £4.4m (HY 23, £5.8m.

Outlook: “Our key focus remains delivery of the transformation strategy announced on 14 December. We are delivering worldwide client services while focussing on cost control, margin improvement and increased utilisation. We continue to make excellent progress in our migration to a single premium Diales brand and in developing a global pipeline of talent and opportunity”. HY results, 12 June.

Warehouse REIT (WHR, 79p, £339m)

Specialist warehouse investor. Q4 (Mar) trading update. 22 transactions completed, on average 30% ahead of previous contracted rents. These transactions bring total leasing activity for FY 24 to 1.5 million sq ft, achieved on average 28.6% ahead of previous contracted rent.  Total rent attributable to these transactions is £10.0m, taking total annual contracted rent to £44.6m.  LFL contracted rental growth for the 12 months is c. 5%, (HY rate, +1.7%).

Outlook: “The multi-let industrial market benefits from a diverse mix of occupiers, making it more resilient through the cycle and supporting our strategic priority to capture portfolio reversion”.

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