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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February 6, 2024

SPR, ALU | Economics – Construction optimism hits two-year high

Company news

Springfield Properties (SPR, 79p, £93m mkt cap) – SPR is a client of PERL

Scotland’s only quoted housebuilder. Affordable housing contract. New contract, worth £15.3m, signed with Highland Housing Alliance for the delivery of affordable housing. The contract includes an initial bulk sale of housing, followed by a design and build aspect. The group will receive £4.1m for a bulk sale, which is scheduled to complete during the current financial year. The design and build phase, worth £11.2m, is due to commence in the coming weeks, with the majority of the revenue to be recognised in the next financial year.

Outlook: “Since reengaging with affordable housing providers, we have been greatly encouraged by the interest that we are receiving. Within the last eight months, we have signed contracts worth c. £40m with local housing authorities and other affordable housing providers. Alongside the design and build contract, we are pleased to have this opportunity to deliver a bulk sale that will support our overall sales rates as well as our focus on maximising cash generation. As well as contributing towards the Scottish Government’s ambitious affordable housing targets, these homes will help meet the surge in demand for housing in the Highlands with the Inverness and Cromarty Firth Green Freeport expected to bring 10,000 new jobs to the area. Our strong land-holding across the highlands means we are well placed to assist with housing delivery and we look forward to working with HHA to provide these much-needed homes”.

The Alumasc Group (ALU, 183p, £66m)

Sustainable building products, systems and solutions provider. HY (Dec) results. Rev +6.4%, £47.8m; u-lying op margin, 14.1% (HY 23, 13.4%); u-lying PBT +12%, £6.3m; stat PBT +5.7%, £5.6m; u-lying EPS +5.7%, 13.0p; interim div +1.5%, 3.45p; net debt, £7.4m (£6.8m); gearing 0.5x EBITDA (0.5x).

Trading: Water Management – rev +12%, £22.0m; margin, 16.0% (12.8%), “driven by the recent investments in overseas sales resource and project work at Chek Lap Kok airport”. Building Envelope – +2.2%, £18.7m; 12.8% (14.1%), “despite a challenging marketplace.  New products continued to be an important contributor”. Housebuilding Products – +1.4%, £7.1m; 24.5% (23.0%), “a robust first half year … partially achieved through the extended distribution of its existing products, where new customers appreciate the industry-leading next day service and low carriage paid order values”. Acquisition of ARP Group, a manufacturer and distributor of specialist metal rainwater and architectural aluminium products for a maximum cash consideration of £10m completed in December. “The acquisition strengthens Alumasc’s rainwater product offering, brings exciting consolidation synergies and will support delivery of the Group’s strategic growth plans”.

Outlook: “As expected, UK sales were resilient in a challenging environment; and coupled with strong overseas sales. The Board remains confident in achieving full year expectations, despite the expected continuation of UK demand headwinds and the further delay of a significant export contract in Hong Kong. The group’s focus on sustainable building products, coupled with innovation, cost base management and outstanding customer service, will help mitigate the external geopolitical and economic environment, which is expected continue to create uncertainty for our sector for the remainder of the year. With significant funding capacity and a clear, investment-led strategy supporting both organic and acquisitive growth, the group is focused on delivering outperformance during this period of market volatility. Structural drivers of energy and water management mean the group remains well positioned to deliver significant long-term growth when markets recover”.

Economic data

Construction activity. Expectations of a recovery in outlook among construction purchasers rose to a two-year high in January as the rate of decline in activity during the month improved, according to the latest Purchasing Managers Index report from S&P Global. The headline seasonally-adjusted UK PMI rose to 48.8 in January from 46.8 in December – but below the 50.0 no-change threshold, indicating slowing decline and at the highest reading since August. That said, the index remained below the crucial 50.0 no-change threshold for the fifth month running and signalled a moderate decline in total industry activity. Civil engineering was the best-performing segment (49.8); Commercial activity also showed some resilience, with the respective index pointing to only a marginal rate of decline (49.1).

Meanwhile, House building continued to fall sharply at the start of 2024 (44.2), but at the least negative reading since March (see below). Despite subdued order books, around 51% of the survey forecast a rise in business activity during January year ahead, while only 12% predict a decline: the highest net level of business optimism since January 2022. Lower borrowing costs and higher consumer confidence were cited as factors likely to boost construction activity over the course of 2024. January data indicated a renewed increase in purchasing prices across the construction sector, following three months of falling costs, with some firms pointing to higher prices paid for imported items, especially those that had incurred additional shipping costs.

Economic research

Regional city research. Latest regional city Crane Surveys from Deloitte are out, focusing on the office, residential and other markets in Manchester, Birmingham, Leeds and Belfast.

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