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.

December 12, 2022

SPR, SRC, HOME | Economic data – Asking prices slip for second month, Rightmove; strong construction output drives GDP ‘beat’

Company research

Springfield Properties (SPR, 90p, £107m mkt cap) – SPR is a client of PERL

Scotland’s only quoted housebuilder. Trading update. Guidance: “The Group remains on track for good revenue growth for FY 2023. However, cognisant of the continued market uncertainty, the Board is taking a cautious approach to expectations of future sales rates”. However, inflationary pressures especially in the affordable housing business, previously referred to by the Group, “are expected to combine to impact the Group’s margin and, as a result, the Group now expects to report profit before tax for FY 2023 below that of FY 2022”. Link to Progressive Equity Research note, Taking a prudent outlook in uncertain markets:

“Springfield Properties, Scotland’s only quoted housebuilder, has prudently, in our view, adjusted its guidance for FY23E due to more challenging housing market conditions and specific external factors referred to in September’s FY22 results. Consequently, we cut our estimates for FY23E and, again prudently, for FY24E. Our sector view is that the market may decline less than widely feared, but for now we adopt Springfield’s conservative view.”

Company news

SigmaRoc (SRC, 55p, £351m)

Heavy construction materials group active in the UK, Channel Islands and Benelux. Trading update to 30 Nov (YE, Dec). Guidance: “FY 22 underlying EPS expected to be c. 10% ahead of the market’s expectations; FY 23 outlook remains unchanged”. Trading: YTD rev +20% LFL. “Demand conditions have evolved broadly as expected across market segments, with the group benefitting from its broad end market and geographic diversification. Cost pressures managed through dynamic pricing, savings initiatives and performance improvement programmes”. Outlook: “Visibility into 2023 remains challenging given continued uncertainty around the global economy. Our current expectation is for demand in both the industrial and infrastructure markets to maintain current trends into the early part of 2023, albeit we anticipate some customers will take the opportunity to bring forward seasonal maintenance stops, to coincide with anticipated higher energy prices and the holiday period. Notwithstanding the challenging market conditions in the short term, the Board remains very confident in the group’s long term prospects, supported by its proven business model, and the diversification provided by its European and multi-product footprint”. ESG: The group’s first carbon capture facility, in partnership with Aqualung, is presently on route to Scandinavia for installation in Q1 2023, with the intention to materially accelerate carbon capture roll-out across the group’s lime kiln network.

Home REIT (HOME, 46p, £367m)

Real estate investment trust funding the acquisition and creation of properties providing accommodation to the homeless. Dividend announcement and further update on allegations in short selling report. “In view of the Company’s robust rental income as disclosed in the announcement on 30 November 2022, as well as its strong balance sheet and conservative leverage position”, the Board has declared an interim dividend of 1.38p for the period from 1 June to 31 August. “Whilst the Company remains of the view that the allegations made in the Report and subsequent publications are without foundation and have caused unnecessary and significant disruption and losses to the Company and its shareholders, the Board has taken steps to maintain and enhance shareholder confidence. The Company’s auditor is carrying out enhanced audit procedures, which include a detailed review of the material allegations made against the Company and its advisers [and] … continues to work constructively with its auditor to ensure that the full year results to 31 August 2022 can be published as soon as practically possible and expects this to be no later than 31 January”. The Board has undertaken a series of investor engagement meetings and presentations and is addressing areas of resourcing, governance, portfolio and due diligence.

Economic data

House prices. Average asking prices have fallen by 2.1% M/M in December, following a 1.1% decline in November, with the Y/Y rate for 2022 at +5.6% from +7.2% last month and +6.3% for the whole of 2021, according to the latest House Price Index from Rightmove (link). The UK’s largest property portal forecasts that prices will drop by an overall average of 2% next year “as a multi-speed hyper-local market emerges, with some locations, property types and sectors faring much better than others. We predict that the market will settle into a more normal pre-pandemic level of activity as 2023 progresses”. As mortgage rates have settled down buyer demand over the past two weeks is 4% up on the same period in 2019. The average time to secure a buyer in November is now 45 days, up from 38 in November 2021. (In London it is down to 57 vs 59).

Avergae asking price trends

Construction activity. UK construction output increased 0.8% in volume terms in October, the fourth consecutive monthly growth and, at £15.3bn at constant prices, the highest level since records began in January 2010, according to the ONS (link). The increases came in both new work (+0.5% M/M) and repair and maintenance (+1.3%). Five out of the nine sectors registered M/M increases, with the main contributors private new housing, and non-housing repair and maintenance, which increased 2.9% and 1.7%, respectively. The level of construction output in October was 4.8% above the February 2020 pre-pandemic level (new work, +0.2%; repair and maintenance work +13.5%). The strong monthly figure, along with a rebound in consumer-facing activity following the late Queen’s funeral, were the main contributors to this morning’s stronger than expected increase in October’s GDP, +0.5% vs consensus of +0.3%. Next release, 13 January.

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Opinions contained in this communication represent those of PERL and/or our affiliates at the time of publication and PERL does not undertake to provide updates to any opinions or views expressed. PERL does not hold any positions in the securities mentioned in this communication, however, PERL’s directors, officers, employees, contractors and affiliates may hold a position,  and/or may perform services or solicit business from, any of the companies or related securities mentioned.

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