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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March 14, 2024

VTY, ESP, SVS | Economic data – Housing activity outlook continues to improve, RICS

Company news

Vistry Group (VTY, 1,116p, £3,802m)

Formed from the mergers of Bovis Homes and housebuilding and partnerships divisions of Galliford Try (GFRD) and Countryside Partnerships; currently transitioning to a high volume, high ROCE partnerships model. FY (Dec) results. Completions +35%, 16,118; rev +30%, £4,042m; adj op margin, 12.1% (FY 22, 14.5%); adj PBT unch, £419m; stat PBT +23%, £305m; adj EPS -36%, 88.2p; TNAV, £2,170m (£1,871m); net debt, £89m (net cash, £118m).

Trading: Excluding the former Housebuilding business, the Partnerships business delivered year on year growth in revenue, and maintained a ROCE of c. 40%. 67% of total completions were from registered provider, local authority and private rented sector sales and 33% from open market sales. “The transition of our former Housebuilding land bank progressing well and we have remained active in the land market during 2023 securing a total of 13,067 plots (8,547) to support our growth objectives and medium-term targets. There was a significant step-up in group’s timber frame output, with capability to deliver c. 8,000 units”.

Outlook: Sales rate per site per week since start of the year, 0.72 (0.61). “The group is on track to deliver strong growth in completions in 2024, targeting in excess of 17,500 units, underpinned by its forward sales position totalling £4.6bn, of which £2.1bn is for delivery this year. There has been a notable pick-up in demand from PRS providers in recent months. The easing of mortgage rates at the start of the year has had a positive impact on Open Market demand and we are optimistic that this trend will continue during 2024. We continue our transition to a capital light Partnerships model and are targeting the release of capital through a series of initiatives. The group expects to have a net cash position as at 31 December 2024. In line with our stated capital allocation policy, we are announcing a further ordinary share buyback programme of £100m to commence in April, and the Board will evaluate additional special distributions throughout the year. We remain confident in achieving a 40% ROCE and £800m operating profit in the medium term, and returning £1bn of capital to our shareholders over the next three years”.

Empiric Student Property (ESP, 94p, £567m)

Fund owning and operating UK student accommodation. FY (Dec) results. Rev +10%, £80.5m; EPRA earnings +17%, £20.6m; EPRA EPS +18%, 3.4p; divs +27%, 2.75p; EPRA TNAV, 115p (FY 22, 121p); portfolio valuation, £1,079m (£1,098m); EPRA LTV, 32.7% (30.6%); net initial yield, 5.5% (5.2%).

Trading: “During what has been another record year, we have delivered strong rental growth and filled our rooms earlier than ever before. Customer satisfaction improved further and continues to be amongst the highest in the sector”.

Outlook: LFL rental grow for 2023/24 academic year, 10.5% (99% occupancy). “Ongoing undersupply of high quality, well located student accommodation in prime cities, and customer satisfaction continue to drive increased re-bookings and greater demand for our rooms. This momentum has continued into the new sales year, and positions us well for growth”.

Savills (SVS, 940p, £1,357m)

International real estate services group. FY (Dec) results. Rev -3%, £2.2bn; u-lying PBT -42%, £94.8m; stat PBT
-64%, £55.4m; u-lying EPS -42%, 55.1p; divs +4% 20.8p; net cash, £157m (FY 22, £307m).

Trading: “A robust performance of the less transactional businesses, representing 65% of group revenue”. Property Management and Consultancy revenues +11%, £900m and +4%, £460m, respectively. Savills Investment Management revenue -6%. Assets under management unch, £22.1bn. A $1bn commitment from Samsung Life largely awaiting deployment. Global Transactional Advisory revenues, in aggregate 35% of Group revenue, -17%, “reflecting significantly reduced capital and leasing market volumes globally”. Global Residential rev -19% “as markets normalised, following high levels of post pandemic activity, and adapted to higher interest rates”.

Outlook: “With increased expectation of a reduction in the cost of capital being likely during 2024, we expect re-financing driven activity and the sustainability agenda to be positive for transaction volumes, and therefore improving price transparency, in a number of markets. There also remain, for the near term at least, questions over office utilisation in certain locations, perhaps most keenly felt in the North American metropolitan markets of the eastern and western seaboards. Current economic and geopolitical conditions remain uncertain and although we expect this to continue for some time, most markets appear to be past the moment of peak uncertainty. There are some early signs of underlying market improvements, which should set the course for a broader recovery during the second half of the year and into 2025”.


Economic data

Housing market. The Residential Market Survey for February from the RICS shows a return to modest growth in buyer enquiries for the second consecutive month, a further reduction in the rate of price declines and positive expectations for price and activity levels in the year ahead. A positive ‘balance’ for new buyer enquiries (% of surveyors reporting rise minus % reporting fall) was unchanged at +6 (below, left), signifying modest but steady growth. Vendor instructions rose to +21, the strongest reading since October 2020, and in stark contrast to the continuously negative picture cited throughout 2023. This should ease upwards pricing pressure but also introduces greater liquidity into a market that had been undersupplied. The headline price balance of -10 (below, right) is the least negative figure since October 2022, having been as low as -67% in September 2023. In London, the turnaround in the price indicator is slightly more pronounced with this measure across the capital rising from -68 in September 2023 to +5 in February. Looking ahead, a net balance of +36 of respondents across England and Wales now envisage house prices returning to growth at the twelve-month time horizon (up from a reading of +18 last month). In Lettings, both tenant demand and rent expectations continued to rise (due to further reductions in Landlord Instructions) but at lower rates of growth.


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