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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April 17, 2024

SFR, WINK, SHED | Economic – Inflation falls slightly less than expected; House prices falls almost zero, ONS

Company research

Severfield (SFR, 54p, £167m mkt cap) – SFR is a client of PERL

Britain’s leading structural steel group, with sales to Europe and a rapidly growing Indian JV. FY (Mar) trading update, new Chairman appointed, launch of £10m share buyback. Link to Progressive Equity Research report, Step change in European and Indian outlook:

“Severfield’s full-year results to March will be ‘slightly above’ the Board’s expectations, according to today’s trading update, with net debt significantly better. We maintain our PBT estimates for both forecast years, which are ahead of consensus, but reduce our net debt for FY24E. Record orders were boosted by the steel specialist’s European operations, after last year’s Voortman acquisition, while the Indian JV has seen ‘another step up in profitability’. The group has also launched its first share buyback.”

Company news

M Winkworth (WINK, 163p, £21m)

Franchised estate and lettings agency, focused on London and SE. FY (Dec) results. Rev -0.5%, £9.3m; PBT ‑13%, £2.1m “in line with management expectations,”; EPS -15%, 13.0p; div +6.4%, 11.7p; net cash, £4.6m (FY 22, £5.3m).

Trading: Network revenue from franchisees: Sales -20%, £27.6m; Lettings & Management (L&M) +5%, £30.2m. Property management revenue within L&M +12% and now 26% of total network revenues.

Market: “Successive interest rate rises in 2023 … led to a significant reduction in transactions. Against this background, Winkworth’s business remained strong, and we continued to execute our plan of recruiting new talent to acquire certain existing franchises, creating significant uplifts in revenue. We have witnessed some price weakening in the rental market with supply increasing [+29% Y/Y to end of March 2024) and demand declining (-5%). We believe that affordability ceilings have now been reached”.

Strategy: Four new offices opened in the year (FY22, two). Certain franchises not renewed “where our standards were not being met and results were below expectations”, leading to the closure of the Battersea, and Clapham offices (with active discussion with new, proven agents to relaunch”), and the sale of the Kennington Lettings business to Kennington sales franchisee, who is aiming to open a further office its territory. Potential to open or relaunch eight new franchisees in London over the next 18 months. Further investment in digital platform.

Outlook: “2024 has had a stronger start than expected”. Sales agreed to the end of March +23% Y/Y. “There is a sense that the worst of the cost-of-living crisis may now be past, and we are seeing a gradual return to more normal economic conditions. We expect housing prices to remain broadly flat this year, with new interest instead feeding through into an increase in transactions which have been held back over the past 18 months”. Three new offices opened in 2024 in St Leonard’s, Leamington Spa and Stoke Newington. “With the planned new franchisees in London, and our portfolio management initiatives revitalising ambition and growth right across the business, we are excited by the outlook for the current year”.

Viewpoint: The improvement in sales agreed supports as yet largely anecdotal evidence that the London housing market has been recovering – with the +23% possibly a sign of out-performance. The softening in London rents, albeit from an historic high, has started to be highlighted in RICS and other data, but the increase in the ‘M’ in L&M should counteract this, and represents higher quality income.


Urban Logistics REIT (SHED, 107p, £505m)

Specialist UK ‘last mile’ logistics real estate investment trust. Q4 (Mar) performance update. Average LFL rental growth 23% across all lease events. Three new lettings and three rent reviews in the period, covering 374,000 sq ft of space, including one vacant asset; £1.3m total new annualised rental income equating to 0.3p per share; £1.1m new rental income generated from new lettings; £0.2m new rental income generated from rent reviews; post period end, disposal of an asset in Bedford for £3.8m, at a 1.9% premium to net book value, at a 5.4% net initial yield. Occupancy rate, 94.2% (Q3. 93.2%) with further leases under offer post period end.

Outlook: “We have seen increased occupational activity in the latter stages of the financial year, with a significant rise in like for like rental rates.  This provides evidence that valuations are stabilising and rents improving in our sector. The optimism in our sub-sector supports our confidence for the coming year, during which we will see the benefit of a full year’s rental income from recent leasing activities flowing through to higher earnings. Going forward, we remain focussed on our strategy: delivering earnings and capital growth from targeted real estate acquisitions, active asset management, supported by a strong balance sheet, a low LTV, and strong relationships with banking partners”.

Economic data

House prices, inflation. UK house price annual inflation narrowed to 0.2% in February from 1.3% in January, according to the ONS. The average UK house price was £281,000. In England prices fell 1.1% Y/Y to £298,000; Wales -1.2%, £211,000; Scotland +5.6% £188,000; Northern Ireland (Q4) +1.4%, £178,000. Of English regions, Y/Y inflation was highest in the North East, +2.9%; London was -4.8%. On a non-seasonally adjusted basis, average UK house prices increased by 0.4% between January and February. , compared with a decrease of 0.7% during the same period 12 months ago. The ONS data, from HM Land Registry, is the most comprehensive of the house price data sources, also bringing in cash purchases as well as mortgage-backed, but is based on completed transactions, so more historical than lenders’ data, based on mortgage approval stage.

CPI fell to +3.2% Y/Y in March, down from 3.4% in February, ONS. On a monthly basis, CPI rose 0.6% in March 2024, compared with a rise of 0.6% in February and 0.8% in March 2023. The largest downward contribution to the monthly change in both CPIH and CPI annual rates came from food, with prices rising by less than a year ago, while the largest, partially offsetting, upward contribution came from motor fuels, with prices rising this year but falling a year ago. Core CPI (excluding energy, food, alcohol and tobacco) – a key factor in BoE rates decision-making – rose by 4.2% in the 12 months to March 2024, down from 4.5% in February; the CPI goods annual rate slowed from 1.1% to 0.8%, while the CPI services annual rate eased slightly from 6.1% to 6.0%. Next releases 22 May.

Viewpoint: The 20 bp fall in CPI, although a welcome step in the right direction, was higher than 3.1% consensus expectations, while it appears that members of the Bank’s Monetary Policy seem as concerned about what’s happening in the US economy Committee (and more so, arguably, the Treasury, with an eye on the impact of higher inflation Stateside on global government yields on its own debt servicing costs) than on its own mandated task of inflation control in the UK. Yesterday’s employment data contained mixed data: a further softening in the labour market (‘dovish’) but faster than expected wage growth (‘hawkish’). Long-and-short: despite dovish language surrounding the last no-change on rates, it looks likely that Governor Andrew Bailey and his colleagues will have the, ahem, cojones to cut rates before the summer.

House price inflation
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