Construction output grows for third month in row (RDW, CSP, GFRD, DRV, SHED)

Company news

Redrow (RDW, 472p, £1,586m mkt cap)

Top 10 UK housebuilder. AGM. Guidance: “Given the strength of our order book and the increase in private average selling price, despite the recent reduction in sales rate, we expect our revenue for 2023 [Jun] to be c. £2.1bn (FY 22, £2.1bn) and our operating margin to be c. 18% (19.3%)”. Trading: “The housing market [has] returned to normal following the elevated sales rate in the previous two years. However, recent instability in financial markets has had a negative impact on the housing market and the business has had to adapt to the changing economic outlook”. Private reservations per outlet per week -28%, 0.49 (0.68). The group’s premium Heritage range, combined with geographical and product mix and general house price inflation, has resulted in average selling price of private reservations of £483k, +6.9% Y/Y. Outlets +4.3%, 120; FY guidance, 120, in line with guidance in September. Overall build cost inflation expected to be c. 7% for FY. “Due to the current economic uncertainty, we are being selective and limiting our land buying for the time being.” Forward orders  at 6 November -8.7%, £1.36bn, of which 74% is exchanged (73%). Net cash, £182m, 4 November (5 November 21, £297m); YE guidance, over £150m.

Countryside Partnerships (CSP, 229p, £1,140m)

Leading mixed-tenure housebuilder. Previously called Countryside Properties, before concentrating on its mixed-tenure operations. Shares suspended following acquisition by Vistry Group (VTY).

Galliford Try Holdings (GFRD, 162p, £178m)

UK construction and infrastructure services group. AGM. Guidance: “The group’s operations are performing well and we are trading in line with expectations. Against a backdrop of unsettled wider market conditions, the Board is confident of meeting its objectives for the current financial year [Jun] and the group is continuing to make good progress on its sustainable growth strategy”.

Driver Group (DRV, 29p, £15m)

Legal claims consultant to the global construction industry. Trading update. Guidance: “The Board can confirm that it expects to report an underlying loss before tax of £0.3m for FY (Sep) 22, before one-off Middle East reorganisation costs of £0.6m due to the Middle East and APAC issues announced on 23 May 2022. Management have implemented plans to scale costs back further, to account for the lower revenue expected as a result of the Middle East and APAC reorganisation. Management expects to see the business return to profit in Q1 of the new financial year, and to realise further performance enhancements in Q2, based on the prudent steps it has taken to identify and implement additional improvements”. The Group will also recognise an onerous lease provision of approximately £1.0m at its former Haslingden HQ in Lancashire.  Trading: “The group’s UK, European and North American offices have had another strong and profitable year within management expectations, delivering an operating profit of £4.2m; group central costs were £2.4m. “This has been a particularly challenging year for the business. We have faced head on the legacy challenges in the Middle East and APAC that have damaged the Group’s overall performance in recent years, masking the excellent contribution made by our business units in the UK, Europe and Americas.  We have dramatically reduced our exposure to risk in the Middle East & APAC, which will now make a positive contribution to the Group”. Outlook: “The Group has replaced and strengthened its Middle East and APAC management teams and further optimised the Group’s global footprint to enhance its returns and minimise risk. As a consequence of this realignment of priorities and servicing, larger project work that would formerly have been undertaken solely in the Middle East region will in the future be distributed among and delivered by the Group’s business units worldwide, supporting that region and its clients in a more efficient and cost-effective way. The UK team has successfully grown with a series of expert hires, and the expansion of the team in mainland Europe has contributed to the delivery of regional profits. The group has started to benefit from its investment in a new enterprise software system which, following a commissioning process interrupted by the pandemic … is now performing satisfactorily and is on course to support the realisation of further efficiency gains. FY (Sep) results expected first half of February.

Urban Logistics REIT (SHED, 150p, £708m)

Specialist UK  ‘last mile’ logistics real estate investment trust. HY (Sep) results. Net rental income +54%, £25.4m; gross to net rental income ratio, 96.4% (H1 21, 96.0%); IFRS profit, £2.4m (£50.3m); adj EPS -2.3%, 3.38p; div unch, 3.25p; EPRA TNAV -3% Q/Q, 183.1p; IFRS net assets, £871m (Q1, £534m); LTV, 22.3% (16.9%). Outlook: “The occupational market remains very strong, with low national vacancies of 3% (Savills) driven by underlying supply/demand imbalance resulting in strong rental growth. c. £60m available to deploy on new acquisitions opportunistically. Significant asset management opportunities [exist] within the portfolio, [Our] strong tenant base [is] focused on essential goods and less likely to be susceptible to broader economic headwinds – including Theo Muller Group, Unipart Group (NHS), XPO Logistics, Giant Booker (Tesco)”.

Economic data

Construction activity. Construction output increased 0.4% in volume terms in September, the third consecutive monthly of growth, and Q3 (Sep) showed a 0.6% rise, according to the ONS (link). The September monthly figure reflected volume increases in both new work (+0.6%, with Infrastructure +2.8%) and RMI (+0.2%, public housing +11.3%) and follows small upward revisions, to +0.6% in August 2022 and +0.2% in July. The level in September was 4.0% above the February 2020 pre-Covid level, with new work -0.3% and RMI +12.0%. The more representative Q3 level was the weakest quarterly growth since Q3 21 (-1.1%), the increase coming solely from growth in new work (+2.4%) as RMI fell 2.2% during the quarter. The annual rate of construction output price growth was 10.1% in the 12 months to September 2022; this has slowed slightly from the record annual price growth in May 2022 (11.5%). The construction output data fed into today’s GDP release, which showed a 0.2% decline for Q3 – lower than the -0.5% consensus forecasts. (Estimates for September 2022 are affected by the bank holiday for the State Funeral of Her Majesty Queen Elizabeth II, where some businesses may have closed or operated differently on this day.)

Fortnight ahead

Construction & property: company and economic news

Big week ahead for economic policy and data, with the Chancellor Jeremy Hunt announcing the Government’s fiscal statement on Thursday. Confirmation expected that most of the tax cuts proposed in Kwasi Kwarteng’s ill-fated ‘mini-budget’ are to be reversed (although Stamp Duty reductions are currently preserved); the question is what ‘growth’ elements, such as ‘investment zones’ and infrastructure planning, will survive. (Then there’s that perennial favourite, HS2). On wider data, inflation data will be out on Wednesday: could this be a repeat of yesterday’s better than expected US pricing stats, which pushed down UK gilt yields (a key driver of mortgage rates) and lifted the pound and housebuilders’ shares?