Product availability ‘best for two years but costs to remain elevated for the foreseeable future’

Company news

Travis Perkins (TPK, 793p, £1,685m mkt cap)

Leading UK builders’ merchant and owner of Toolstation. Guidance: “Whilst forward visibility is limited, the group expects to build on the current resilient performance and deliver a full year operating profit around the middle of the current range of market expectations. This is after absorbing the impact of the unforeseen additional bank holiday in September”. Trading: LFL rev growth, Q3, +7.4%; YTD +7.8%. Volume growth, Q3, -5.6^%; YTD -3.9%. Price growth, Q3, +16.3%; YTD +14.8%. “The Merchanting businesses continue to outperform their markets, delivering total sales growth of 11.5%, with trading performance remaining consistent throughout the quarter. Toolstation returned to growth with like-for-like sales up 0.2% year-on-year with the trend improving throughout the quarter. The European business continues to progress well, seeing total sales growth of 23.3% in the quarter, and Toolstation remains on track to roll out around 80 new branches in 2022, split equally across the UK and Europe”. Viewpoint: Volume declines accelerated in Q3, compared with Q1 – 2 but offset by accelerating price increases; this trend was more apparent in Merchanting than Toolstation.

SigmaRoc (SRC, 43p, £271m)

Heavy construction materials group active in the UK, Channel Islands and Benelux. Q3 (Sep) trading update. Guidance: “Every quarter this year has been challenging and Q3 was no different. However, the group’s unique structure, decentralised operating model and diversified end markets have allowed it to be agile in the face of these challenges. As a result, we remain on track to deliver our expectations for this year and retain solid and broadly based order books across the group”. Trading: YTD volumes +2% LFL; rev, 9 months, +19%, £394m; u-lying EBITDA +5%, £77m (19.5% margin “ahead of management’s expectations”); “Good cash generation for the Period with focus on de-gearing through to 31 December 2022”. Infrastructure and housing construction end markets (57% of group revenues) seeing “robust” demand; Industrial mineral markets (41%), “resilient” demand. “A combination of contractual pass through, dynamic pricing and hedging arrangements continue to offset inflationary pressure and have ensured that solid operating margins are being maintained”. Outlook: “During the period the group has deployed approximately £56m of growth investment, encompassing both organic expansion and acquisitions. Initiatives instigated during the Period are expected to realise EBITDA benefits of £5m in 2022, with significant further scope for performance enhancement in 2023 and beyond”.

Segro (SGRO, 715p, £8,652m)

UK’s leading owner and developer of warehouses and industrial space, also active in Europe. Q3 (Sep) trading update. Guidance: “Segro has performed well throughout the third quarter, delivering excellent operational results with momentum continuing into the final quarter. Occupier demand remains strong across all of our markets, driven by long-term structural trends, whilst supply remains limited and this should continue to support high levels of rental growth”. Trading: Total new headline rent signed during Q3 -23%, £20m; uplift on rent renewals, +22% (Q3 21, +13%); occupancy, 96.7% (96.8%); customer retention, 76% (76%); development space completed -6.9%, 419,100 sq m, of which potential rent, £86m (£68m). Outlook: “Increases in interest rates and the volatile macro-economic environment have reduced volumes in the investment markets, causing asset prices to soften in the third quarter. However, we remain focused on the fundamentals of our business – owning, managing and developing the highest-quality buildings whilst maintaining low leverage and a strong balance sheet, thereby supporting the delivery of attractive growth in earnings and dividends for our shareholders”. FY results, 17 February.

Economic data

Supply chains. All regions of the UK are reporting the best product availability in two years and falling rates of price inflation, albeit mixed across component groups, according to the latest monthly Construction Product Availability Statement from the Construction Leadership Council (link). “Softening demand has led overall product price inflation to moderate slightly, dropping from 25% to around 17%. The concerns are greatest for energy intensive products such as bricks, blocks, glass, steel, cement and ceramics that have already seen sustained price increases during 2022.  Some suppliers have already announced further increases from January”. Availability of bricks has significantly improved and deliveries of aircrete blocks are being managed.  Aircrete block manufacturers report strong sales of foundation blocks: “the increased below ground activity is likely due to builders seeking to get new starts registered before changes in Part L regulations next June”. Longer delivery times for gas boilers remain but availability is more positive than for some months. Electro-technical products continue to be affected by the restricted supply of semi-conductors.  “Now, with rising interest in products related to energy saving, renewable energy production, storage and heating, there are further concerns over both availability and price escalation for electrotechnical products that may impact both the construction and facilities management sectors”. Outlook: “Although many construction sectors remain resilient and infrastructure and housebuilding activity has remained strong, there are early signs of softening in demand.  This is most clearly seen in the home improvement sector where the rising cost of living and increased costs of finance are denting consumer confidence, but also in a reduction in the number of large commercial construction contracts being placed. General container shipping prices from Asia to the UK have dropped over 50% since January and punctuality has improved.  That said, high oil prices, strained global infrastructure, labour issues, Covid shutdowns in China and the war in Ukraine will cause logistics-related problems to persist and costs to remain elevated for the foreseeable future”.

In other news …

Housing. More than a quarter of London’s younger generation renters are considering leaving the city within the next 12 months due to the cost-of-living crisis, according to research from Pocket Living, Property Week (link, paywall). The first time buyer focused developer’s poll of over 1,000 Londoners, aged between 25 and 45 years old, found that younger renters considering leaving the city has risen from 16% to 27% since its survey  last year. 54% of renters planning to leave the capital claimed they do not want to leave, but “feel they have no choice”.