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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June 3, 2024

SPR, HERC, TPFG | Economic data – Completed housing transactions continue to rally, but incoming mortgage approvals ease

Company research

Springfield Properties (SPR, 94p, £112m mkt cap) – SPR is a client of PERL

Scotland’s only quoted housebuilder. Strategic Collaboration. Springfield has entered into a strategic collaboration agreement with Barratt Developments, for the development of the Group’s Durieshill site, creating a new village near Stirling. Link to Progressive Equity Research note, Village partnership with Barratt speeds growth:

‘Springfield has entered into a major partnership with Barratt Developments (BDEV) to accelerate the creation of the Scottish housebuilder’s planned ‘village’ of over 3,000 homes near the strategically connected city of Stirling. The sale of the land to Barratt, as part of a new 50:50 strategic collaboration with Springfield, will reduce debt by more than its previous guidance and should contribute to planned growth in the medium term.’

Company news

Hercules Site Services (HERC, 37p, £23m)

Technology-enabled labour supply company for the UK infrastructure sector. HY (Mar) results. Rev +32%, £48.8m; adj EBITDA +91%, £8.1m; PBT, £0.2m (HY 23, loss £0.2m); EPS, 0.28p (0.59p); interim div unch, 0.6p; net debt, £4.3m (£6.1m).

Trading: “Significant organic growth in all areas of the business, combined with the first contribution from the Future Build Recruitment acquisition has helped the company achieve another period of record growth in H1 2024. The Construction Academy opened on 31 January and has already started to generate significant interest and initial revenues from colleges, clients, and the industry in general.

Outlook: “We are on track to meet market expectations for the full year, as the strong momentum in the construction and infrastructure sectors continues”.

The Property Franchise Group (TPFG, 405p, £252m)

Franchised lettings and estate agent group, enlarged through the recent acquisition of Belvoir Group, also operating hybrid web-based EweMove platform. Acquisition. GPEA and associated companies, trading as The Guild of Property Professionals and Fine & Country acquired for a total consideration of approximately £20m.  This is split with £15m in cash on completion and £5m on the first anniversary of completion. The Guild and Fine & Country provide services to a total of 1,036 outlets, of which 65 are international. Expected to be immediately earnings enhancing. In the year ended 31 December 2023, the Acquisition produced audited revenues of £13.2m, audited EBITDA of £3.5m and PBT of £3.3m. 73% of FY2023 revenues were from recurring memberships and licences. The total consideration represents c.5.7x 2023 audited EBITDA. Post-Acquisition leverage for the Group will be below 1x FY2023 pro forma adjusted EBITDA. “The acquisition fits within the group’s strategy to acquire accretive businesses with complementary and recurring revenue streams which deliver network expansion and geographic growth. The  management team is well regarded and experienced, including Iain Mackenzie, who will remain with the businesses”.

Economic data

Mortgage lending. Mortgage approvals for house purchase slipped by 0.2% M/M 61,140 in April, on a seasonally-adjusted basis, following five months of relatively strong growth, according to the latest Money and Credit statistics from the Bank of England. However, the non-seasonally-adjusted April total was 45% higher Y/Y. The ‘effective’ interest rate on newly drawn mortgages increased slightly by 1 bp, to 4.74% in April. The rate on the outstanding stock of mortgages increased by 7 bps, to 3.57% in April.

Mortgage approvals for house purchase

Housing market volumes. The number of housing transactions in the UK rose by 4.6% M/M to 90,430 in April, the largest of four successive increases bringing the cumulative increase to 10.7%, according to latest HMRC data. The latest monthly total is now 9.7% below the 10-year average (below, left). On a non-seasonally-adjusted basis, the Y/Y change was +17.3%, the first positive reading since November 2022.

Housing Markets transactions

Viewpoint: These two sets of data, released on Friday after the ‘Daily’ was posted, presents in ‘time-lapse’, the possible effects of four months of rising average mortgages rates for the most popular fixed-rate loans, as measured by Rightmove – which were featured in the Friday edition. Completed housing transactions lag trends in mortgage approvals, which are registered at the start of the home buying process, by several months. These latest ones look healthy, since they track purchasing decision made during the period of falling rates for two- and five-year fixed-rate deals, which bottomed out in February. However, the slight waning in mortgage approvals in April – after months of strength – show the tighter lending criteria may now be having a detrimental impact. Hence, it would not be a surprise if, in turn, HMRC transactions come off the boil in the months ahead. That said, Friday’s Rightmove mortgage tracker showed the first very small decline in rates during the week – only a basis point or two – but, directionally, encouraging. If the BoE does finally bite the bullet this month (or in August it lacks the political bottle), we could see housing volumes regain their upwards momentum. (Sorry if that sounds a bit long-winded …).

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