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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December 8, 2022

PURP, BBY, MER | Economic data – rate of decline in housing activity slowing, RICS

Company news

Purplebricks Group (PURP, 10p, £31m mkt cap)

Hybrid on-line estate agent, supported by local property agents (LPAs). H1 (Sep) results. Rev -16%, £34.5m; loss before tax, £14.6m (H1 22, -£12.9m); loss per share, 5p (-7p); div, 0p (0p); net cash , £27.0m (£58.3m). Trading: Instructions unch, 21,205; ave rev per instruction -1%, £1,624. Annualised cost savings increased from £13m to £17m. Purplebricks Financial Services launched. New marketing campaign from October driving 6%  increase in fee per instruction. Turnround plan gaining momentum with aim to diversify revenue and build a more scalable, balanced business, with less reliance on instructions; financial benefits forecast to start to come through in H2 and drive positive cash generation early in FY 24. Outlook: FY (Mar) 23 revenue guidance reiterated at £67.5 – £72.5m; FY 23 EBITDA “expected to be in line with market consensus” of -£8.8m (range, -£4.0 – 11.3m). Positive cash generation expected in early FY 24.


Balfour Beatty (BBY, 332p, £1,955m)

UK, US and Hong Kong construction and infrastructure group. Trading update. Guidance: FY (Dec) rev expected to be about 5% ahead of prior year (£8.3bn) largely driven by foreign exchange. Profit from operations from earnings-based businesses is expected to be in line with guidance at the half year. Profit for the year now expected to be ahead of market expectations due to positive net interest income and the recognition of deferred tax assets significantly reducing the tax charge. FY 22 ave monthly net cash now forecast to be around £800m, ahead of the previous guidance of £740 – 780m. Trading: YEorder book is expected to be around 5% ahead of the prior year (£16.1bn), largely due to favourable foreign exchange movements. “The Group continues to de-risk the order book across its portfolio by focusing on projects with the appropriate terms and conditions”. Five infrastructure investments disposed during year for c. £90m at a profit of c. £65m; £30m invested in new projects. The group is currently preferred bidder on two projects in the UK and one in the US, all of which are student accommodation projects.


Mears Group (MER, 188p, £208m)

UK housing support services provider. Trading update and Board changes. Guidance: “The Board now expects that the Group will deliver revenues for the full financial year to 31 December of c. £950m and adjusted PBT of c. £33.5m, both above the current range of market expectations. This better-than-expected trading performance has been driven by the continued elevated volumes within the group’s Management-led contracts.  Average daily net cash for the 11 months to 30 November 2022 of c. £40m is also ahead of previous guidance”. Trading: The group has been bidding on several material contract opportunities during the second half and has been short-listed on the re-tender of the North Lanarkshire Future Integrated Housing Service contract, estimated at £1.8bn over 15 years. The anticipated commencement date for the new contract is January 2024. It is also awaiting the outcome of the Community Accommodation Services (CAS3) tender to the MoJ. Outlook: “The Board is confident in the outlook for 2023 and is focused on continuing to improve the operating margin and delivering strong cash generation”. Board changes: Kieran Murphy, who joined the Board as Chairman in January 2019, wishes to pursue new opportunities elsewhere and to step down from his role as Chairman at the AGM in May 2023. He led the Board “through a very challenging period, and oversaw a strategic transformation of the business that resulted in the simplification of the group and a very significant strengthening of cash flow generation and the balance sheet”. Chris Loughlin, Senior Independent Director, will become Chairman following the AGM. Lucas Critchley will be appointed to the Board as Executive Director on 1 January 2023. He joined the Group in 2004 and has held senior roles. The appointment of Lucas is in line with the announcement on 27 May, regards the planned succession of CEO, David Miles, who will work towards his planned retirement from the Board after 27 years. “This transition is well under way, and it is intended that Lucas will become CEO during 2023”.

Economic data

Housing market. Both buyer enquiries and vendor instructions continued to fall in November, albeit at a lower rate of decline, while the decline in prices gathered pace, according to the Residential Market Survey from the RICS (link). The net balance for new buyer enquiries (% of respondents reporting rises minus % registering declines) was -38% in November, the seventh successive negative monthly although less negative than the -53% in October; a similar trend was observed with vendor instructions (below). For agreed sales, there was also a less negative balance, -35% following -45% in October, again implying a reduced rate of decline in activity volumes. House prices continued to decline, with a net balance of -25% of survey participants now seeing a fall, down from a reading of -2% in October. The biggest falls were in the South East and South West of England; prices continue to edge higher in Scotland and Northern Ireland. Over the coming twelve-months, an aggregate net balance of -61% of contributors foresee a further decline in house prices, down from an already weak reading of -48% last month. However, the expected actual price fall is modest at c. 2.5%, while the five-year outlook is for an average of c. 2.5% pa.

New Vendors

A different picture continues to develop in the lettings market, with tenant demand contining to rise, with a net balance of +35% of respondents reporting a pick-up in November (part of the monthly non-seasonally adjusted lettings dataset). At the same time, the flow of fresh supply becoming available on the rental market continues to dwindle, as a net balance of -27% of respondents highlighted a decline in landlord instructions. The continuing rise demand and fall in supply continues to exert upward pressure on rents, with +43% of contributors expecting rents to increase over the coming three months, although a moderation from the recent high of +66% in February.

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