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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October 12, 2023

SHI | Economics – Further house price falls but activity stabilising while rental market soars, RICS

Company news

SIG (SHI, 34p, £402m mkt cap)

Supplier of energy efficiency and specialist building materials to trade customers across Europe. Q3 (Sep) trading update.

Guidance: “We expect weaker demand conditions to persist through the rest of the year, with a negligible impact overall from input price inflation or deflation.  Our second half profitability is benefitting from ongoing productivity initiatives, including the early impact of already executed restructuring actions that will deliver £4m of annualised benefits.  We also expect a profit of c£3m on one specific property move in France, as previously reported.  Despite the positive early impact of these initiatives, the lower than anticipated sales mean that the Board now expects the Group to deliver full year underlying operating profit in the range of £50m to £55m [previous guidance “towards lower end of range of market expectations”, £65 – 84m].

Trading: YTD rev nc Y/Y, £681m; UK -2%, £304m (Interiors -3%, £189m; Exterior nc, £115m); EU -2%, £681m (-4%, France; -1%, Germany; +7%, Poland; Benelux -8%; Ireland, -13%). “Market conditions remained challenging across all our geographies. Whilst the year-on-year volume performance in H2 has improved from H1, as expected due to prior year comparators, the extent of this has been less than anticipated, with a notable softening in demand in September.  Although this applies to most segments, it has been most marked in new build residential in all markets.  We believe we are continuing to outperform the markets in which we operate, reflecting the strengthened performance across our branch network over the last two to three years.  Working capital and capex remain tightly managed across the group.”

Outlook: “Notwithstanding short-term market weakness, we continue to progress the strategic and operational initiatives which underpin our ambition. We remain confident in our ability to further improve our market positions, and to continue to improve profitability when market conditions recover”. Capital markets event, 23 November.

Economic data

Housing market. The September Residential Market Survey from the RICS shows continuing weakness across most sales indicators, but an apparent levelling-off in declining transaction volumes. The lettings market data, however, continued to reach new highs. The headline seasonally-adjusted (SA) sales price balance (% of surveyors reporting rises minus % reporting falls) was -69, from -68 in August (implying a continuing fall at a faster rate); while buyer enquiries was -39 from -46% (still falling but at a lower rate). Vendor instructions was -17 from -25, suggesting tightening supply, which could restrict further price falls. Price expectations for the next 12 months moved from -48 to -33, while supplementary analysis from RICS suggests actual expected price falls (rather than on a ‘balance’ basis) are only c. -1.5%, a slight improvement since August. Also on an actual numbers basis, the number of sales per surveyor on a rolling 3-month basis to September, SA, was 12.6, up from 12.1 in the period to August (see below). The non-seasonally adjusted Y/Y fall to the three month period to September was -16%, down from -26%, -25% and -23% respectively in the periods to June, July and August. However, the latest volumes are still 28% below the 10-year average.

Sales per surveyor, 3m, seasonally-adjusted (number)

Meanwhile in the quarterly lettings survey, tenant demand improved from a balance of +43 in Q2 to +54 in Q3, the highest since the 20+ year high of +61 in Q1 22. Supply continued to fall, with landlord instructions falling to -30 in Q2 from -24 in Q1. Reflecting this, rent expectations rose from +55 in Q1 to a series high of +63. This equates to an actual year ahead price rise of c. +4.5%, according to RICS, with the five-year average outlook approaching +6% pa.

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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