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.

November 7, 2023

PSN, VTY, GFRD, FOXT, KINO | Economics – house prices bounce, Halifax

Company news

Persimmon (PSN, 1,082p, £3,455m mkt cap)

UK number three housebuilder by volume, top by market cap. Q3 (Sep) trading update.

Guidance: “Trading in the period was in line with expectations and pricing was broadly stable. We are on track to deliver around 9,500 quality new homes in 2023 with operating profit in line with expectations and at an operating margin similar to the first half. We continue to anticipate a cash balance of £300m – 500m at the end of the current financial year”.

Trading: Private sales rate per site per week -24% Y/Y, 0.48 (Q1, 0.62; Q2, 0.58; YTD, 0.56); over the past five weeks this has improved to 0.59 (2022, 0.45), “showing a strong pick up since the start of October”. Of this 0.08 relates to investor sales, expected to represent c. 5% of FY delivery. Average sales outlets +1%, 271. Private prices +2% Y/Y, £297k. “Pricing was broadly stable in the period despite continued affordability constraints, particularly in the South of England where we have seen an increase in the use of incentives”. In the third quarter, average incentives on private sales increased to c. 3.6%. Partnerships prices +20%, reflecting greater proportion from the South. Private forward sales -33%, 3,344 homes. Land holdings, c. 84,300 plots (Q3 22, 91,300).

Outlook: “While the near term is likely to remain challenging and we remain disciplined on costs, we continue to position the business for growth when the market recovers, as demonstrated by our further progress on planning in the period. The Group’s national network of outlets providing a high-quality product at a range of attractive prices is a crucial strength in this market”. FY (Dec) trading update, 10 January.

Viewpoint: A relatively upbeat tone from CEO Dean Finch in the conference call: “the market is remarkably stable overall for the environment we’re in. At the start of the year, we’d have taken this in a heartbeat”. Taken along with the rise in prices reported by the Halifax (below) and Nationwide plus comments from Bank of England chief economist Huw Pill, in The Telegraph (paywall), that it was “not unreasonable” to expect a cut in rates by the middle of next year, a more dovish tone than has recently been emanating from the MPC.

Vistry Group (VTY, 734p, £2,538m)

Formed from the mergers of Bovis Homes and housebuilding and partnerships divisions of Galliford Try (GFRD) and Countryside Partnerships. Contract. £819m partnerships deal signed with Leaf Living and Sage Homes for the delivery of more than 2,900 mixed tenure new homes. The homes are on plots located across 70 of Vistry’s developments, with delivery to commence this year and the majority to be completed within the next two years.  The plots formed part of the group’s former Housebuilding landbank and are being pre-sold in-line with its strategy of pre-selling c. 65% of all units across the business. The transaction comprises 1,522 units for the private rented sector to be delivered to Leaf and 1,393 affordable homes for rent and shared ownership to Sage, the largest provider of newly built affordable homes in England. An initial cash receipt of c. £160m is expected in FY23, with further staged payments across the development programme. In addition to releasing significant capital, the secured revenues enable an acceleration of the delivery of units across the 70 sites.  The portfolio is expected to deliver an adjusted operating margin in excess of 12% and ROCE of c. 40%, in line with Vistry’s medium term financial targets.

Galliford Try Holdings (GFRD, 236p, £243m)

UK construction and infrastructure services group. Contract. The Building business has been appointed by Related Argent and Invesco Real Estate, the global real estate investment manager, to an £87m contract to deliver a further phase of the new build-to-rent development at Brent Cross Town, north London.

 

Foxtons Group (FOXT, 39p, £118m)

High profile London estate and lettings agent. Acquisition. Ludlow Thompson Holdings acquired for £10m, on a cash and debt free basis, funded through the group’s existing cash resources and £20m RCF. Ludlow Thompson is a lettings-focused estate agent operating across seven branches in London, generating over 70% of total revenue from lettings. Total revenue and profit before tax for the 12 months ended 31 December 2022 was £7.3m and £0.1m respectively. Gross assets as at 31 December 2022 were £5.5m. Following the delivery of operating synergies, which include integrating Ludlow Thompson into the Foxtons branch network and scalable operating platform, Ludlow Thompson is expected to deliver significantly higher levels of profitability from the £0.1m of profit before tax reported for the 12 months ended 31 December 2022. The acquisition is expected be accretive to the group’s FY (Dec) earnings and deliver an attractive return on capital in line with its target return on capital for acquisitions of 20%. Exceptional one-off charges will be incurred in 2023 relating to the integration. Of the total consideration, £1.5m is deferred for a period of 12 months subject to the business delivering against certain performance targets.

 

Kinovo (KINO, 55p, £35m)

Property services provider, formerly Bilby, specialising in compliance and sustainability.  HY (Sep) trading update.

Guidance: “The continuing operations of the group have performed strongly in the first half of the year, further benefiting from the strategic repositioning to focus on its three key pillars of Regulation, Regeneration and Renewables. At this stage, the Board is confident of achieving full year results in line with its expectations”.

Trading: Legislative drivers including the Building Safety Act, Fire Safety Act and changes to the Electrical Wiring Legislation have increased the proportion of Electrical workstreams in the first half, delivering a higher margin, with an uplift in gross margins to 27.7% (H1 23, 25.9%). With a number of planned works being delayed due to clients’ administrative bottlenecks and only commencing in the latter part of the first half, the Board expects to report a revenue increase of 2% to £30.3m (£29.8m) and 46% increase in operating profits to £2.8m, driven by a favourable work mix, enhanced by operational efficiencies and lower non-underlying costs. As the planned works progress and new contract wins are fully mobilised, revenues are expected to pick up further in the second half of the year, albeit at more normalised margins, as part of the group’s traditional second half weighting. The Company is progressing the legacy construction projects associated with DCB Kent, Kinovo’s former construction division, and continues to expect seven of the nine projects to be completed during the current financial year, with five of these expected to complete by early December 2023.  Further developments have also been made and negotiations continue with the remaining two projects. The current overall pre-tax cost to complete estimate for the projects within DCB are estimated to increase from £5.3m, as reported at 31 March, to £5.7m. The cost estimate will be updated in conjunction with Kinovo’s final account reconciliations. HY results, 28 November.

Economic data

House prices rose by 1.1% M/M in October to £289k, following six consecutive monthly falls, the Halifax reports in its latest House Price Index. The Y/Y decline has narrowed to -3.2% from -4.5% in September. The better than expected figure was explained by the Halifax to a lack of new supply of homes rather than being driven by buyer demand. All UK nations and regions saw Y/Y house price declines. The greatest fall was seen in the South East, where prices decreased by -6.0% over the last year (average price, £374k). Scotland was the most resilient, down just 0.2% to £203k. Northern Ireland, -0.5% (£184k); Wales, -3.9% (£213k); London, -4.6 (£524k). The first-time buyer market “has held up relatively well”, with prices falling at a lower rate of 2.4%.

Outlook: “Across the medium-term, with financial markets not anticipating a decline in the Bank of England’s Base Rate soon [see BoE comments above], we expect house prices to fall further overall – with a return to growth from 2025”.

Halifax House Price Index
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