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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November 10, 2023

RDW, GFRD, SRC | Economy – Construction output rise supports better than forecast GDP | News – Mortgage arrears rise, especially for landlords | Fortnight ahead

Company news

Redrow (RDW, 520p, £1,720m mkt cap)

Top 10 UK housebuilder. AGM.

Guidance: “We continue to expect our results to be in the guidance range we gave in September of revenue between £1.65bn and £1.7bn and profit before tax of between £180m and £200m [for FY (Jun) 24]. However, with [a] lower than anticipated sales rate due to the more subdued autumn housing market they are more likely to be towards the lower end of the range. We continue to expect to have net cash of over £150m at the end of June”.

Trading: Homes turnover for the period -30% Y/Y, £456m; order book at 3 November -37%, £864m, of which 66% is exchanged (prior year, 74% exchanged. For the current financial year, we have already legally completed or exchanged c. 58% of revenue (72%). Gross private reservations per outlet per week, 0.49 compared (0.63, with no bulk sales in either period). “Following the usual summer slowdown we reported in our 2023 results announcement, the housing market has remained subdued through the autumn. The business has had to adapt to this more difficult trading environment in terms of build rate and operating costs. Whilst our customers are generally financially resilient, with 35% of our private customers being cash buyers many of them are at the top of a house purchase chain. Currently the rate of breakdown of chains is elevated because of difficulties with mortgages lower down the chains”. As a results the cancellation rate for the year is 25% (22%), resulting in a net weekly reservation rate of 0.36 [the industry convention for reporting]. This is an increase on the 0.34 for the first 10 weeks of the financial year albeit it is below the 0.38 achieved for the first half of FY2023. Average prices for private reservations – 2.5%, £471,000. Average outlets, 125 (120). Due to the slower sales market, average outlets for FY 24 expected to be c. 113 rather than the 117 guidance issued in September. Whilst build cost inflation continues to abate, overall build cost inflation is expected to be c. 7% for financial year given the inflation in the opening work in progress. Due to improved timing of affordable legal completions, the revenue profile for the current financial year to be more evenly split than originally anticipated, with 45% in H1 and 55% in H2.

Viewpoint: Redrow’s focus on larger family homes is a differentiator with other housebuilders, but the resulting longer chains (noticeable in the bigger secondhand sector) is more of a factor for the group relative to its peers, which have recently been, at least anecdotally, been reporting chinks of light in the market.

Galliford Try Holdings (GFRD, 228p, £235m)

UK construction and infrastructure services group. AGM.

Guidance: “In September 2023 we announced increased confidence in the current year outlook.  The group’s operations are performing well and we are trading in line with the Board’s revised expectations. We are encouraged by the momentum in the first half of the year [to Jun], with a number of recent project wins, and the Board remains confident of maintaining progress on its sustainable growth strategy and meeting its objectives for the current financial year”. Recent corporate moves are the acquisition of AVRS Systems, on 9 November, which further enhance the Environment business’s specialist mechanical, electrical, instrumentation, control and automation services.   On 26 October the group agreed terms to dispose of its non-core piling business, Rock & Alluvium, with the sale expected to complete later this month.

SigmaRoc (SRC, 49p, £343m)

Heavy construction materials group active in the UK, Channel Islands and Benelux. Update on sustainability initiatives. Includes Cement-free, carbon negative concrete blocks, in partnership with CCP Building Products, using ground granulated blast-furnace slag as the main raw ingredient; and a collaboration with fossil-free energy developer OX2 e-fuel production.

Economic data

Construction output rose by 0.4% M/M in September, seasonally-adjust, following a 0.8% decline in August, ONS. The rise in the latest month was entirely due to new commercial work and RMI, while both public new housing and other work registered the biggest declines (see below). On a Y/Y basis, non-seasonally adjusted, total work rose by 0.4%, down from 0.9% in August. Next release, 13 December. The positive construction output rise helped today’s unchanged overall GDP data from avoiding an expected decline, ONS.

Construction output September

In other news …

Mortgage arrears have risen sharply with landlords hardest hit, Property Industry Eye. The number of mortgage holders who have fallen significantly behind on their repayments has increased by 18% over the past 12 months, according to UK Finance. 87,930 homeowner mortgages were in arrears during the third quarter of the year – up 7% on the previous three months but still running at less than half the number seen in 2009 following the global financial crisis. Buy-to-let mortgages fell more in arrears, rising 29% over the same period to just over 11,500, owed following the sharp rise in interest rates.

Affordable housing. Leading London housing association L&Q saw housing completions fall by a third in its first half as it attempts to deleverage, Building (paywall).  The 109,000-home housing association, in a trading update for the six months to 30 September, announced it has completed 1,350 new homes in 2023/24 so far as it aims for a a 50% reduction in capital expenditure by 2026.

Viewpoint: Several years ago L&Q had set out a ten-year programme to build 100,000 homes, but, like many other major HAs, has been hit by high debt levels, borrowing costs, building safety and other requirements.

Fortnight ahead

Construction and property - company and economic news

Prices are as at the previous day’s close. Where quoted, net debt is pre-IFRS16 (excluding leases) unless otherwise stated.

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