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 21, 2023

SFR, CRH, UKCM, BYG | News – Life sciences property boom predicted

Company research

Severfield (SFR, 65p, £201m mkt cap) – SFR is a client of PERL

Britain’s leading structural steel group, with sales to Europe and a rapidly growing Indian JV. HY (Sep) results. Link to Progressive Equity Research note, Guidance reiterated after H1 profits increase:

“Severfield has reiterated its FY24E guidance after delivering a 17% increase in underlying PBT despite ‘challenging’ market conditions. We retain our profitability and cashflow estimates for FY24E and FY25E, with higher margin assumptions offsetting lower revenue projections. In our view, the long-term outlook continues to be underpinned by new markets, such as datacentres and nuclear work – plus a recent revival in London office work – with further growth likely from the group’s expansion in the EU and India.”

Company news

CRH (CRH, 4,743p, £33,220m)

Irish-European-US building materials producer and distributor. Q3 (Sep) earnings update and acquisition. Guidance: “Looking ahead to the remainder of the year, we are raising our guidance and expect to deliver full-year EBITDA of approximately $6.3 billion, representing another record year for CRH”.

Trading (9 months): Rev +8%, US$26.3bn; EBITDA +14%, US$4.8bn. “Third quarter sales in Americas Materials Solutions were ahead of prior year (+5%), driven by strong pricing progress across all lines of business, which offset lower activity levels resulting from unfavourable weather in certain regions. Sales in Americas Building Solutions were ahead of prior year (+4%), driven by increased pricing and contribution from acquisitions while like-for-like sales were in line with the prior year. Europe Materials Solutions delivered positive sales growth (+17%) driven by good commercial management and a currency tailwind which more than offset the impact of lower activity levels. Europe Building Solutions (+10%) continued to be impacted by subdued new-build residential activity and like-for-like sales were behind prior year”.

Acquisition: Portfolio of cement and ready-mixed concrete assets in Texas from Martin Marietta Materials for a total consideration of US$2.1bn. The combined portfolio is expected to generate pro-forma 2023 EBITDA of c. US$170m.

UK Commercial Property REIT (UKCM, 59p, £760m)

Real estate investment trust holding commercial properties including industrial, office and retail. Statement regarding the possible all-share merger with Picton Property Income. “On 8 November, UKCM announced it was in discussions with Picton regarding a possible all-share merger. UKCM has been informed by its largest shareholder that it does not support the possible merger on the terms proposed. Accordingly, UKCM has informed Picton that it is terminating discussions with Picton regarding the possible merger”.

Big Yellow Group (BYG, 1,074p, £2,107m)

Self-storage REIT. HY (Sep) results. Rev +6%, £99.6m; adj PBT -2%, £53.5m; stat PBT, £120m (HY 23, £6.8m); adj EPS, -1%, 29.0p; interim div +1%, 22.6p; net debt, £495m (Mar, £486m; proforma following placing, £388m).

Trading: Max lettable area +2%, 6.5 million sq ft; closing occupancy, 81.4% (84.2%); closing rent psf +6.5%, £33.47.

Outlook: “The transition to a higher interest rate environment has been testing but we believe that this has now been largely absorbed into the business. Following the recent placing, we have the funding and balance sheet strength to commence the build out of the next phase of stores. We believe that this, along with the available space on our existing platform, will drive a significant increase in revenue and earnings over the next few years. The balance sheet will be further strengthened by the sale of approximately £90m of surplus non-storage assets, which we expect to complete over the next 18 months. There is evidence that land prices have been, and are, dropping materially and this will provide an opportunity to replenish the pipeline”.

In other news …

Life sciences. British Land believes the UK’s life sciences market could generate an additional £4bn in gross value by 2035 if it can match the growth seen in the US, according to a report the property giant has issued in collaboration with Savills, Property Week (paywall). The Accelerating Innovation report claims that if the life sciences markets in the Golden Triangle of Cambridge, London and Oxford matched the growth seen in leading markets in the US, it would generate 67,000 more jobs and an extra £1.1bn in annual tax revenue for the Treasury. It recognises a severe shortage of real estate space to accommodate both current and predicted demand, with vacancy rates for fitted laboratory space in the Golden Triangle of just 1% in Cambridge and London and 7% in Oxford.

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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Any prices quoted in our research are as at the previous day’s close.