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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May 1, 2024

SPR, WIX, HSS, LSL, CREI | Economics – Mortgage approvals hit 18-month high, BoE; ‘Second monthly price fall’, Nationwide | News – Gove proposes CPOs without ‘hope value’

Company news

Springfield Properties (SPR, 96p, £113m mkt cap) – SPR is a client of PERL

Scotland’s only quoted housebuilder. Contract. £10.1m contract signed with Moray Council for the delivery of affordable housing. Springfield will receive funds from the sale of the land to the council in the current financial year and the design and build phase, which accounts for the vast majority of the contract value, is due to be delivered over the next 18 months. The development is being funded by Moray Council and The Scottish Government. It is part of the Moray Growth Deal, which is designed to boost economic growth across the region, including through a project to deliver hundreds of affordable homes, and brings together Scottish and UK governments, Moray Council, public and third sector organisations and private businesses. Outlook: “We are pleased to have been awarded this latest affordable housing contract from Moray Council, which is a long-standing partner of Springfield. As part of the Moray Growth Deal, it reflects the importance of housing delivery to driving economic growth. With our strong land-holding across the region and established relationships, we are well-placed to be awarded further contracts under this project to provide much-needed homes”. Viewpoint: More evidence of the company’s progress in its policy of reducing debt.

Wickes Group (WIX, 146p, £360m)

UK DIY retail chain. Trading update, 16 weeks to 20 Apr. Guidance: “Our overall profit expectations for the full year remain unchanged”. Trading: Group LFL sales -4.2% Y/Y. “The start of 2024 has seen a continuation of trends from the fourth quarter last year and those highlighted at our recent full year results, with volume growth in Retail and a decline in Design & Installation”. Retail rev +0.6% LFL, a fourth consecutive quarter of positive LFL growth. “Market share has also continued to grow. With selling prices in mild deflation, the growth in Retail sales has been driven by volume with an increased number of transactions”. TradePro +12%; “DIY sales remain in moderate decline overall; customers continue to be enthusiastic about home improvement but are focusing on smaller projects”. Design & Installation -18%, “reflecting a particularly strong comparative period, when we were still benefiting from an elevated order book.  Ordered sales so far in 2024 have been in single-digit year-on-year decline”. Outlook: “We continue to focus on tight cost management throughout the business. In addition to planned productivity initiatives, we will deliver cost savings in Design & Installation as a result of, and to help offset, the lower sales volumes currently being experienced. Looking ahead, we continue to invest for future growth with our programme of store refits, new store openings and investment in both technology and Solar Fast, building an even stronger Wickes for the future”. Capital markets event, 16 May.

HSS Hire Group (HSS, 8p, £58m)

Anglo-Irish tool and equipment hire group; low cost builders’ merchant. FY (Dec) results, board change. Rev +4.9%, £349m; adj PBT ‑43%, £11.9m; stat PBT ‑46%, £9.0m; adj EPS -46%, 1.29p; divs +4%, 0.56p; net debt, £112m (FY 22, £94m); net leverage, 1.2x (0.8x). Trading: “Momentum is building with transformational marketplace growth strategy. 1,000 customers have now transacted on our self-service marketplace platform with 30% average revenue growth”. 24% of the group’s transactions (FY22, 14%) are now originated through self-serve technology platforms, ProService Marketplace and HSS.com. Low-cost builders merchant network expanded to 89 locations; +21% revenue on a same stores basis. Migration of 16 traditional HSS branches to builders merchant model in Q4 23 delivering c. £1m annualised cost saving. “Continued progress with sustainability strategy and on track to meet key milestones”. Outlook: “Q1 24 revenue grew 3% driven by ProService with the group’s historic Services segment continuing to deliver double-digit growth, despite continued softness in certain customer segments and the impact of the mild winter on seasonal products. Management continues to manage costs, while also benefiting from the group’s lower-cost operating model. Capex is expected to be £26 – 29m including c. £3m to support the group’s marketplace strategy. Management remains confident that full year EBITA will be in line with market expectations”. Directorate change: CFO Paul Quested will leave HSS and resign his HSS directorship with effect from 1 September, after nearly eight years with the group, having decided to dedicate time to his family for the foreseeable future. A recruitment exercise to find his replacement is underway.

LSL Property Services (LSL, 298p, £310m)

Estate, lettings and property/financial services agent. Board change. Adrian Collins appointed as non-executive Chair with immediate effect. His executive career was spent in fund management including 25 years at Gartmore; in 1995, he was one of the founders of Trustnet; he has also held senior roles at Jupiter, Bestinvest and Lazard Investors. Darrell Evans,  currently the interim Chair, will resume his role as an independent non-executive director.

Custodian Property Income REIT (CREI, 74p, £327m)

UK commercial real estate investment trust, which made an unsuccessful attempt recently to acquire abrdn Property Income Trust (API). Q4 (Mar) trading update. LFL ERV +0.8% since 31 December, driven primarily by rental growth in the industrial sector.  Portfolio ERV (£49.4m) exceeds passing rent (£43.1m) by 15% “demonstrating the portfolio’s significant reversionary potential” LFL passing rent +1.7% “driven by resilient occupier demand for space across all sectors of the portfolio”. Three rent reviews settled during the quarter, on average 7% ahead of ERV and 29% above previous passing rent. NAV per share, 93.4p (93.3p). Net LTV, 29.2% (30.6%). Outlook: Q4 div, 1.375p; FY 24 special div, 0.3p; FY 25 target, 6.0p. “These dividend increases, which are expected to be fully covered by net rental income, reflect the improving earnings characteristics of the Company’s portfolio with recent asset management initiatives and the disposal of vacant properties increasing occupancy and crystallising rental growth”.

Economic data

Mortgage approvals for house purchase increased for the sixth consecutive month, seasonally-adjusted, returning to an 18-month high of 61,325 (below, left), according to the latest Money and Credit data from the Bank of England (from yesterday). The monthly increase was 1.4% (below, right), the lowest SA increase in the past six months. Net approvals for remortgaging (which only capture remortgaging with a different lender) decreased from 37,700 to 34,200 over the same period. The effective interest rate on newly drawn mortgages decreased by 17 basis points, to 4.73% in March. Next release, 31 May. Viewpoint: Yesterday’s third straight increase in completed transactions from the HMRC (including cash purchases) showed the delayed impact (around three months) of earlier positive mortgage approval and RICS indicators. The latest BoE data suggests the ‘hopper’ is still being fed – albeit at a lower rate of increase. If there is to be any further sustained improvement in the health of the market … it will probably need the same bank’s Monetary Policy Committee to get of the fence and cut rates.

Mortgage approvals

House prices rose in value for the fourth consecutive month in April but declined on a seasonally adjusted basis for a second month in a row, the Nationwide reports. Prices rose by 0.3% to £262.0k, up 1.8%, from the recent low of £257.4k in December. On a seasonally-adjusted basis, prices fell by 0.4%, following a 0.2% decline in March (below, right). The Y/Y non-SA increase slipped to +0.6%, from +1.6% in March. The report highlights the lender’s survey of would-be first time buyers, with cost-of-living pressures a key constraint – but with many FTBs considering properties in less expensive areas or going for smaller homes. Viewpoint: I’ve always been a little sceptical about whether seasonality has any material impact on house prices; volumes absolutely (see above), prices scarcely. The combination of price data and volume indicators suggest that the market will possibly start to mark time in the coming months after a material recovery since October, probably picking up pace again in the autumn, when rates and economic conditions will again fuel growth.

 

01/05/24

In other news …

Affordable housing policy. The Department for Levelling Up, Housing and Communities (DLUHC) has handed councils new powers to buy cheaper land – via compulsory purchase orders, in certain circumstances without pricing in ‘hope value’ – in a bid to support the delivery of more social and affordable housing, Property Week. Hope value estimates what land could be worth if it was developed on in the future, meaning councils are paying thousands of pounds more to buy land for housing or other developments. The measures are also intended to reduce delays so councils can start building homes faster. Viewpoint: There is no detail on the DLUHC statement on what constitutes ‘certain circumstances’. This would mark a radical – and arguably very un-Conservative – departure from the Land Compensation Act (1961), introduced by then-PM Harold Macmillan. Margaret Thatcher warned of the risks of ‘bucking the market’ and this could lead to unintended consequences. But, the increasing capricious planning whims from the Levelling-up Secretary Michael Gove suggests this will never see the light of day.

 

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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