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 13, 2024

UTG, HERC | Economics – Outlook for house prices in 2024 now positive, not negative, Savills

Company news

Unite Group (UTG, 963p, £4,197m mkt cap)

Owner, manager and developer of UK student accommodation. Disposal of properties. Six properties sold to PGIM Real Estate for £184m (Unite share, £76m). The disposals are priced in line with book value, reflecting an net operating income yield of 6.2%. Proceeds will be recycled into asset management activity and used to meet redemption requests in USAF. The properties were held for sale at December 2023 and the disposal was incorporated into guidance for adjusted earnings of 45.5 – 46.5p in FY 24, which remains unchanged. The properties, comprising 2,948 beds, are located in Birmingham, Cardiff, Leicester, Nottingham, Sheffield (all owned by Unite’s USAF JV fund) and Liverpool (wholly-owned) have an average age of 18 years (Unite average, 13 years). 31% of beds are let on short-term nomination agreements (Unite, 53%, 5.8 years average remaining term).

Outlook: “These disposals continue our disciplined approach of recycling capital for reinvestment and further increases our alignment to the strongest universities. The growth outlook for purpose-built student accommodation remains compelling and we are tracking a number of new investment opportunities at attractive returns”.

Hercules Site Services (HERC, 34p, £21m)

Technology – enabled labour supply company for the UK infrastructure sector. HY (Mar) trading update.

Guidance: “The company is trading in line with market expectations for the full year to 30 September 2024”, HY rev +27%, c. £47m.

Trading: “All income streams grew, each with their own individual drivers, underpinned by the substantial demand in the infrastructure sector. We have gained a number of new contracts, including over £5m in civil projects and signed a significant new framework agreement with Costain. The integration of Future Build Recruitment following our acquisition of the business in December 2023 is progressing well and we are already seeing cross-selling and upselling opportunities from our existing clients. As the UK continues to face a skills shortage, the Hercules Construction Academy successfully opened in January 2024 and is already developing a reputation for delivering first class training and the upskilling of workers across the industry. The site, based in the West Midlands, also gives us a strategic foothold in the heart of England”.

Outlook: “With continuing strong momentum in the infrastructure sector including highways, energy and water, we look forward to the rest of this financial year with confidence”. HY results, 3 June.

Economic research

House price forecasts. Savills Research has pivoted from predicting low single digit house falls for 2024 in November and is now forecasting low single digit growth this year. The agency’s research department’s Revised Mainstream House Price Forecasts: 2024–2028 concludes: “At the beginning of November, we forecast that house prices would fall by an average of -3.0% in 2024 and that housing transactions would remain at around 1m for the year”. Now the agency is predicting +2.5% for 2024 and 1.05 million transactions, with 3.5 – 5.0% and increased volumes for the following four years (see below). The report explains: “At that time, a 75% LTV mortgage from Nationwide on a two-year fix cost 5.34%. Mortgage approvals were down below 50,000 per month. One of the most reliable lead indicators of house price movements – the reading for new buyer enquiries in the RICS Housing Market Survey – was still in negative territory. Yet the average UK house price rose by a net figure of +1.1% in the first three months of the year, according to Nationwide bringing annual house price growth to 1.6% at the end of March. Furthermore, monthly mortgage approvals in February rose above 60,000 for the first time since September 2022, and the RICS reading for new buyer enquiries moved back into positive territory. Not only are fixed-rate mortgage costs lower than we anticipated at this stage, but they have also been much less volatile. And this, combined with a slightly improved outlook for economic growth, has given buyers more confidence”. However, it cautions: “We aren’t getting carried away. Over the medium term, our forecasts have changed very little, with the same longer-term affordability considerations applying”.

Mainstream forecast housing
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