Brick stock levels continue to recover from 34-year low | TW, CRN, GFTU, HSS, BBOX, AUK

Company research

Taylor Wimpey (TW., 118p, £4,351m mkt cap)

UK number two housebuilder by volume. FY (Dec) results. Rev +3.2%, £4,420m; adj PBT +13%, £908m; stat PBT +22%, £828m after fire safety-related exceptional items of £80m (£125m); adj EPS +10%, 19.8p; TNAV 127p (118p); net cash, £864m (£837m).

Trading: UK completions -2.7%, 13,551 (private, -7.0%; affordable, +17.5%); prices +4.3%, £313k (private, +6.0%; affordable, +12.2%); ; op margin, 20.9% (FY 21, 19.3%). Sales rate/site/week: H1 22, 0.90; H2 22, 0.48; H1 23 (to 26 Feb), 0.62.

Outlook: “Assuming prevailing market [and planning] conditions continue, we currently expect 2023 completions of 9,000 – 10,500, broadly equivalent to a net sales rate of 0.5 to 0.7, more weighted to the second half. Based on our order book we expect average private pricing in the first half to be at a similar level to the £367k achieved on in H2 2022”. No guidance on margin other than to emphasis the relatively strong pricing leading into H1 23. “We remain focused on building a strong order book to optimise value as we look ahead. While we remain highly selective in our land acquisition and focused on continued tight cost and work in progress management, we remain agile and ready to respond quickly to changing market conditions”.

Viewpoint: This morning’s results meeting suggested TW is possibly more willing than some of its peers to get back to its growth agenda in 2024. Implied in its volume guidance was the aim to hold back some of the FY 23 completions to build up a strong order book leading into next year; the group was also less reticent than some in re-entering the land market as and when the outlook becomes clearer. Discussion of land investment was peppered with references to its ‘agile’ footing and the possibility of making ‘opportunistic’ purchases – as and when prices fall (they haven’t yet was the response).

Cairn Homes (CRN, 85p, £564m)

Leading Irish housebuilder. FY (Dec) results. Rev +46%, €617m; PBT +86%, €93.5m; EPS +98%, 11.5c; div +11%, 6.1c; net debt, €149m (FY 21, €110m).

Trading: Result “beats” expectations. Completions +36%, 1,526, following “exceptionally strong second half”.  Outlook: “The company has continued our strong sales momentum and has a current closed and forward sales pipeline of 1,503 new homes”. Turnover expected in excess of €650m 1,750 – 1,800 closed new home sales, including over 800 Social & Affordable new homes nationwide; Gross margin of c. 21% (FY 22, 21.7%) “reflecting a slight change in mix over the prior year; progressive ordinary dividends, by way of both an interim and final dividend, of between 40 – 50% of FY23 PAT. Cairn also continues to explore specific returns accretive market opportunities which may result in increased profitability and enhanced shareholder returns in the medium-term, subject to meeting and exceeding our internal returns hurdles”.

Grafton Group (GFTU, 935p, £2,100m)

UK, Irish, Dutch builders’ merchant and products group. FY (Dec) results. Rev +9.1%, £2,301m; adj PBT +1.7%, £273m; stat PBT +0.8%, £252m; adj EPS +3.9%, 96.6p; div +8.2%, 33.0p; net cash £458m, after £209m in dividends and buybacks (£588m).

Trading: “Excellent performance in distribution businesses in Ireland and the Netherlands. Volumes and profitability lower in Selco against a strong comparative period and softer backdrop. UK Manufacturing businesses performed well. Diversified revenue base with over half generated in Ireland, the Netherlands and Finland. Further progress made against sustainability targets”.

Outlook: Ave daily LFL +0.7% Y/Y from 1 January 2023 to 19 February 2023 (UK Distribution, -1.6%). “2023 has commenced in line with our expectations. In general, volumes are slightly lower than the same period last year and price inflation is moderating. In the UK, housing RMI activity is expected to remain weak as discretionary spending remains under pressure.  House building is also likely to slow as house builders respond to the cooling market by reducing starts in response to lower demand”.

HSS Hire Group (HSS, 1,223p, £86m)

Anglo-Irish tool and equipment hire group. FY (Dec) trading update.

Guidance: “LFL revenues were approximately 10% ahead of the prior year, driven by good results through our Rental business and the continued excellent performance of our Services business. As a result, adj EBITA for FY 22 is now expected to be marginally ahead of market expectations. Strong cash generation has resulted in net debt leverage on a non-IFR16 basis remaining below 1.0x. Following the successful legal restructuring of the Group in 2022, strategy implementation across both HSS ProService and HSS Operations is progressing well. Delivery of HSS ProService’s technology roadmap remains ahead of plan. With positive results and strong customer feedback to date, we have a healthy pipeline of customers to roll this platform out to over the coming year”.

Outlook: “Trading momentum, underpinned by effective strategy execution, has continued into 2023 with LFL revenue growth for the first eight weeks of c. 12%”.

Tritax Big Box REIT (BBOX, 147p, £2,798m)

Real estate investment trust investing in ‘big box’ logistics properties. FY (Dec) results. Contracted rent roll +15%, £224m; adj EPS -5.3%, 7.8p; IFRS EPS -32.1p (FY 21, +55.4p); div +4.5%, 7.0p; EPRA TNAV, 180p (223p); LTV, 31.2% (23.5%).

Trading: Portfolio value -7.7%, £5.1bn, equating to an equivalent yield of 5.3% (31 Dec, 4.1%). The LFL reduction in the value of investment assets was -15.2% across the year (H2 22, -20.0%). ·”The impact of changes in yields on EPRA NTA has been partly mitigated by development profits and growth in estimated rental values”.

Outlook: “It is likely that a more challenging economic backdrop may moderate occupational demand to levels which historically would have still been considered strong. The structural demand drivers, combined with very low levels of new logistics buildings supply, are expected to continue to support attractive rental growth in the future. With greater economic uncertainty and the volatility in the investment market, we expect to revert to our long-term guidance for new construction starts in 2023 of 2 – 3 million sq ft. We see the potential for some further, albeit more limited, yield expansion in the first half, but are witnessing encouraging early signs of stabilisation in the investment market which could manifest more clearly in the second half. A moderated pace of development, combined with our ability to rotate capital from standing investments, allows us to maintain a strong balance sheet, while continuing to capture attractive investment and development opportunities. Looking further ahead, the outlook for the sector remains positive. As the current spike in inflation recedes, we see good prospects for rental growth to exceed inflation over the medium term which will help us to deliver attractive returns to our shareholders”.

Aukett Swanke Group (AUK, 2.6p, £4m)

UK’s only quoted architect, active in UK, Middle East and Europe. Acquisition of Torpedo Factory Group, an audio, visual and stage technology provider to organisations in the UK and Europe. Funded through 110 million new acquisition shares [current share capital c. 165m], valued at £2.8m and up to £92,593 to TFG Option Holders, to be satisfied through the issue of up to further 3.6 million new ordinary shares after completion. “The acquisition in line with Aukett Swanke’s objective, in addition to developing the core architecture businesses, to become a master systems designer, integrator and operator in the provision of smart buildings technology. Extending the Group’s offering to its clients to include such smart solutions is expected to provide a competitive advantage to the Group’s core business and to add new income streams”.

Economic data

Building materials. Industry-wide brick stocks are now starting to recover from their multi-decade lows, according to the latest Monthly Statistics of Building Materials and Components, from the Department for Business, Energy and Industrial Strategy  The report – which also provides volume, pricing and import data on a wide range of building materials – shows inventory levels rose for the fourth consecutive month, to 341 million, up 36% from the 34-year low of 251 million in September 2022, but still 14% below the 10-year average of 398 million (see below). The latest level equates to 9.4 weeks of deliveries (based on rolling 12-month data), up from 6.6 in September.

Viewpoint: This – with implications for other basic materials – should provide some respite for both buyers and manufacturers, and the levels are likely to increase further in the months ahead, as housebuilding volumes settle, most likely, in H1 before recovering later in the year.