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.

July 25, 2023

Government sticks to 1 million new homes target | UTG, INL, ECEL, ALU, MTO, WIX, PRSR

Company news

Unite Group (UTG, 945p, £3,804m mkt cap)

Owner, manager and developer of UK student accommodation. HY (Jun) results and capital raise. Rental income +11%, £197m; adj earnings +15%, £110m; IFRS PBT -65%, £117m [after £10.8m of valuation losses and £17.5m of other gains]; adj EPS +15%, 27.5p; interim div +7%, 11.8p; EPRA TNAV, 928p (HY 22, 940p); see through net debt, £1,742m (£1,727m); LTV, 31% (30%).

Trading: Property valuation, £5,774m (YE 22, £5,690m); 3.4% rental growth; average net initial yield across the portfolio is 4.9% (YE 22, 4.7%), with more significant yield expansion in London and prime regional markets, which have had lower income yields.

Outlook: Record reservations of 98% for 2023/24 and rental growth of around 7% (2022/23: 92% and 3.5%).  “Market conditions are the strongest we have seen for many years. There is growing unmet need for high-quality, affordable student housing at a time when houses in multiple occupation (HMO) landlords are leaving the sector and new supply of purpose built student accommodation is limited. There is growing appeal for students in our all-inclusive, fixed-price offer, which compares favourably in price to HMOs. We also see a variety of compelling investment opportunities. Thanks to our partnership with the strongest universities and the capabilities of our best-in-class operating platform, we are uniquely positioned to take advantage of these opportunities”.

Capital raise: 32.7m shares placed at 905p, raising gross proceeds of c. £296m, a discount of 4.2p to yesterday’s closing price. The net proceeds will be used to commit to two additional developments, increasing the committed pipeline to over £600m, as well as increasing investment into existing estate.

Inland Homes (INL, shares suspended)

Leading brownfield developer, housebuilders and partnership housing group, focused on South and South East. Update on related party matters. FRP Advisory Trading has issued the key findings into its independent review of the related party issues at Inland Homes, which prompted its then Chairman and the Group’s other non-executive directors to resign. The findings centre on transactions with First Place Nurseries Limited, of which Inland’s former CEO, Stephen Wicks and CFO Nish Malde each own c. 40% of the shares in FPN. They also cover company guarantees, rental of a property and other matters. According to FRP’s report, the review revealed “significant and repeated failures in Board level corporate governance and failings of internal control in some areas of the Group.  The investigation also identified that certain information was not disclosed to the Company’s board, Nominated Adviser and the current and previous auditors”. Since the events covered by the report, three new independent non-executive directors have or are in the process of being appointed in response to these historical failures in corporate governance, together with a new CEO, Jolyon Harrison.  A new CFO will also be appointed in due course.

Eurocell (ECEL, 114p, £127m)

UK retailer and manufacturer, recycler of PVC windows and doors. HY (Jun) trading update.

Guidance: “Taking [cost efficiencies] into account, our expectations for the full year remain unchanged. As previously highlighted, for 2023 we anticipate a heavy weighting towards H2, with sales returning to a more normal seasonality and profits in the second half benefiting from lower input prices, including raw materials and hedged electricity, and operational cost savings already implemented.”. Trading: rev -2% (Profiles, -1%; Building Plastics, -3%). Profiles – “Reduced repair, maintenance and improvement (RMI) activity and a weaker new build market resulted in lower sales volumes partially offset by the benefit of recent market share gain”. Building Plastics – “RMI volumes in the branch network remain steady but subdued, with increased competition for limited demand leading to some pressure on margins”. “As demand has softened, we have acted to lower our cost base. We completed a restructuring programme in Q4 2022, which has reduced operating costs by c. £5m pa from the start of 2023. With end markets again weakening in H1, and given the more challenging outlook for the remainder of the year, we have recently completed a further headcount reduction, which will lower operating costs by another c. £2m in H2 and by c.£4 million per annum thereafter. A charge of c.£2 million will be included as a non-underlying item in the first half financial statements for the related redundancy costs. In addition, we continue to seek operational efficiencies, for profit improvement, the benefits of which we should begin to see next year”.

Outlook: “Overall, we believe the actions we are taking leave the business well placed to benefit from a recovery in our markets and will, over the medium-term, drive sustainable growth in shareholder value”. HY results, 5 September.

The Alumasc Group (ALU, 160p, £58m)

Sustainable building products, systems and solutions provider. Acquisition. ARP Group, a manufacturer and distributor of specialist metal rainwater and architectural aluminium goods, acquired for a maximum cash consideration of £10.0m, cash- and debt-free, and subject to adjustments for normalised working capital. The consideration comprises an initial £8.5m, adjusted for net cash/debt and normalised working capital, payable at completion; with additional consideration, capped at £1.5m, payable subject to ARP’s performance over the two years ending November 2024. Expected to be immediately accretive to underlying earnings and will be funded from current cash and debt facilities. Following completion of the Acquisition, Alumasc’s balance sheet will remain strong, with 30 June 2023 pro-forma net debt representing approximately 0.75x EBITDA. “ARP marks the first acquisition by Alumasc since 2018 and demonstrates the Group’s strategy to supplement organic growth through earnings accretive acquisitions”.

Mitie Group (MTO, 102p, £1,372m)

UK facilities management group. Q1 (Jun) trading update.

Guidance:  “Traditionally Q1 is the quarter with the lowest revenue. Given the good growth achieved, the Board remains confident in the group’s ability to meet its growth expectations for FY24, particularly as margin enhancement initiatives continue to be delivered”.

Trading: Rev +11%, £1,053m, “benefiting from an increase in projects and variable work, contract re-pricing and prior year acquisitions”. Two acquisitions completed for a total consideration of £21m. Average daily net debt of £137m (Q4 23, £111m); closing net debt at 30 June 2023 increased to £99m (£44m), reflecting capital allocation strategy.

Wickes Group (WIX, 127p, £330m)

UK DIY retail chain. Q2 (Jun) trading update.

Guidance: “The company is comfortable with market consensus for FY 23 adj PBT, being a range of £54.5-57.0m”. Trading: H1 LFL sales +0.7% (Q1, -1.8%; Q2, +3.0%); Core, -0.8%; Do It for Me (DIFM), +5.8%.

Outlook: “This has been an encouraging first half. Our performance has been underpinned by further momentum in Trade, as local traders continue to turn to Wickes to save them time and money, an improving trend in DIY, and a good performance in DIFM. As we continue to make progress across our strategic growth drivers, we are confident in the Group’s prospects for both the remainder of this year and the longer term. Revised capital allocation policy supports a maintained dividend and £25m share buyback programme.

The PRS REIT (PRSR, 84p, £462m)

Real estate investment trust investing in private rental sector (PRS) family homes. Q4 trading update. Number of completed and contracted homes, 5,524 (Q3, 5,526); estimated rental value pa, £58.8m (£57.9m); LFL rental growth, 7.5% (5.7%).

Outlook: “The business model remains firmly supported by market fundamentals, most significantly, a rapidly expanding rental sector, population growth, changing household formation and grossly insufficient new housing volumes.  Reflecting this and the general lack of supply of good quality rental homes, demand for the company’s homes – single-family rental housing – remains very high”.

In other news …

Politics. Housing secretary Michael Gove has launched proposals to extend permitted development rights and a £24m boost for planning skills, in bid to reach the government’s 1 million new homes target – and in contrast to its reported watering down of housebuilding volume targets, Property Week (paywall). The emphasis will be on developing in and around cities. In his announcement, yesterday, Gove said he will introduce rules giving flexibility to convert shops, takeaways and betting shops into new homes. Developers will also be asked to contribute more through fees, ”to help support a higher-quality, more efficient planning service”. A new “super-squad” team of leading planners and other experts will also be set up to work across the planning system to unlock major housing developments, starting in Cambridge to “turbocharge” the government’s plans in the city. The housing secretary unveiled plans to slash red tape to enable barn conversions, as well as repurposing architectural buildings and disused warehouses, with a priority for inner-city areas. A review was also launched into the extension of permitted development rights for homeowners, to make it easier for them to build upwards and outwards, with extensions and loft conversions.

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