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.

December 1, 2023

VANL | Economic data – House prices rebound for third month; Mortgage rates continue four month slide | News – UAE development giant acquires London Square | Fortnight ahead

Company news

Van Elle Holdings (VANL, 37p, £39m mkt cap)

Specialist ground engineering contractor. HY (Oct) trading update. Guidance: “The Board continues to expect results in line with market expectations for the current financial year [£5.0m] and is confident in the group’s outlook over the medium term across all of its core markets”.

Trading: “Results for the [HY] period are in line with the Board’s expectations. This reflects a resilient operational performance despite challenging market conditions, continuing inflationary pressures and delayed project starts”. Expected HY rev -16%, £68m; op profit margins consistent with the prior year (FY23, 3.9%). Orders +6.2%, £32.7m, providing a strong platform entering the second half. Net cash, Oct, £8.9m (Apr, £7.5m) plus undrawn funding facility of up to £11m. The costs of establishing the Group’s new Canadian rail subsidiary have been absorbed in the Period and initial projects commenced in the second quarter.

Outlook: “There continues to be uncertainty and subdued activity levels in some of the group’s end markets, particularly the housebuilding sector, which is expected to continue into the second half of the financial year. However, further progress has been made on several substantial growth opportunities in the energy sector”.

Acquisition update: On 26 October, the group reached an agreement with Galliford Try Holdings to acquire Rock and Alluvium and enter into a five-year trading agreement. The acquisition completed on 30 November. “There are early signs of a recovery in commercial and residential opportunities in London and the South East which Rock and Alluvium is well placed to benefit from. Accordingly, the Board expects the acquisition to be accretive to underlying earnings in the first full year of ownership. HY results, 24 January.

Viewpoint: The comments on an apparent uptick in housebuilding in the South East echo those recently from Persimmon and Bellway, referring specifically to Kent and identifying the wider region as being more sensitive to mortgage rate trends (see below).

Economic data

House prices. Mortgage lender Nationwide has reported the third consecutive monthly rise in prices in November. Prices rose 0.2% M/M, seasonally-adjusted, to £259k, following increases of 0.1% and 0.9% in September and October respectively; the Y/Y decline in November slipped to -2.0% from -3.3% in October – up from a low point of -5.3% in September and the least negative annual rate for nine months (below, left). According to the building society, “Modestly lower borrowing costs together with solid rates of income growth and weak/negative house price growth [demonstrated in the reduction in the house price to earning ratio, below, right], should help underpin a modest rise in activity in the quarters ahead. Nevertheless, a rapid rebound still appears unlikely”.

Annual percentage change in UK house prices2023-12-01 UK house price to earnings ratio

Mortgage rates. Average fixed mortgage rates have continued their consistently downwards trend, which started in late July according to Rightmove’s weekly Mortgage Rate Tracker. The average five-year rates on 28 Nov were: 5.50% (95% LTV); 5.29% (90%); and 5.22% (85%), but the lowest available costs have fallen below 5% for 90% and below: 4.89% for 90% LTVs and 4.71% for 85% loans.

Average mortgage rates, 5 year fixed

Economic data

Abu Dhabi development giant Aldar Properties has acquired residential developer London Square for £230m in a “vote of confidence for the London market”, ConstructionEnquirer.com. The deal represents Aldar’s first acquisition beyond the Middle East region with London identified as a “key and mature international market”. Aldar said it “intends to leverage its expertise and balance sheet to support London Square’s land acquisition strategy to enable it to develop larger and prime central London sites.” Since its establishment in 2010, privately-owned London Square has created a development pipeline worth over £2bn and completed over 3,500 homes, with a pipeline of 930 homes under construction worth £425m.

Fortnight ahead

Construction and Property Company and Economic news

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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