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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July 20, 2023

VTY, KIE, VP, HWDN, FAN, ALU

Company news

Vistry Group (VTY, 791p, £2,733m mkt cap)

Formed from the mergers of Bovis Homes and housebuilding and partnerships divisions of Galliford Try (GFRD) and Countryside Partnerships. HY (Jun) trading update.

Guidance: “Given the strength of the forward order book, progress on integration and targeted cost savings, the Board continues to expect adjusted profit before tax for FY 23 in excess of £450m”. Net debt, c. £330m; expected to reduce to c. £150m YE.

Trading: “Partnerships is demonstrating its resilience and remains on track to deliver revenue growth in the full year.  Housebuilding is maintaining a controlled and disciplined approach, taking the opportunity to deliver bulk sales to support overall sales rates and open market pricing”. The group’s average weekly sales rate for the period was 0.86 (HY 22, 0.84), and excluding bulk sales in Housebuilding was 0.67 (2022: 0.82). Housebuilding completions, 2,847, -22% on proforma H1 22 “reflecting the more challenging market conditions”. Partnerships completions +6% proforma, 3,203.

Outlook: “Partnerships is very well positioned to meet the strong levels of demand for mixed tenure housing, demonstrating the resilience of the partnerships business model. The business is firmly focused on its strategy of delivering 10% revenue growth pa in 2024 and beyond and a 40%+ return on capital employed. Housebuilding is maintaining a controlled approach focused on operational excellence and tight working capital management and cost control.  The expected year on year reduction in private sales rate is reflected in our build rates”. HY results, 11 September.

Kier Group (KIE, 84p, £376m)

Hybrid construction, property and services group. FY (Jun) trading update.

Guidance: Revenue and profit expected to be in line with expectations [with] strong growth in Construction in the second half of the year”. Year-end net cash position will be “significantly above expectations” at c. £60m; ave net debt “better than expectations at c. £230m”. H1, £243m, implying c. £217m for H2.  Trading: “The strong year end cash position was driven by a seasonal inflow of working capital, particularly in our Construction division, which experienced stronger than anticipated growth in the final quarter”. HY guidance was the average net debt would rise in H2 due to lower volumes in Construction [which traditionally in the industry has better cashflow characteristics than infrastructure]. Order book “continues to be above £10bn”; visibility for FY 24, 85% (FY 22 results looking year ahead, 85%).

Outlook: “We have now completed the second year of our medium-term value creation plan, [which has] has embedded bidding discipline and risk management into the business and is allowing us to maximise value and convert the many high quality and profitable opportunities in our chosen markets, which remain favourable. We have also strengthened our balance sheet and grown our order book despite the uncertainty in the wider economy. These factors give the Board confidence in the continued success of the group”. FY results, 14 September.

Vp (VP., 568p, £228m)

Construction equipment rental group. AGM.

Guidance: “We expect performance for the current financial year to be in line with Board expectations”.

Trading: “In the UK, the infrastructure sector, including water, transmission and rail in particular, has remained supportive and we continue to work with our customers on delivery of the longer term regulatory driven capital investment programmes.  As we highlighted in our final results issued on 7 June, we have seen a slowdown in housebuilding where demand has reduced by c. 10% compared with 2022 and has stabilised at this level into our new financial year.  The non-residential construction markets remain subdued.  Our International businesses continue to make encouraging progress with a good start to the new financial year”.

Outlook: “The group remains in a strong financial position with an excellent track record of delivery. Despite both market headwinds and increases in interest rates, we continue to see opportunities”.

Howden Joinery Group (HWDN, 711p, £3,898m)

UK’s largest supplier of kitchens and joinery products to trade customers, primarily small local builders. HY (10/11, Jun). Rev +1.5%, £927m (UK +0.6%, £895m; International +34%, £895m); PBT -23%, £112m; EPS -21%, 15.4p; interim div +2.1%, 4.8p; net cash, £118m (H1 22, £250m).

Trading: “Industry leading gross margin of 61%, normalising from an exceptional level a year ago when we benefited from early implementation of price rises ahead of inflationary cost increases. Our robust balance sheet enabled us to continue to fund a further £32m investment in our ongoing strategic initiatives, which accounted for predominantly all the increase in H1 operating costs. Despite the continued challenging macroeconomic backdrop, our builder customers remain busy, with activity levels normalising from the exceptional levels of a year ago. We are maintaining our focus on competitive pricing to support our customers, while balancing inflationary pressures to optimise volumes”.

Outlook: “Our results are strongly second half weighted, given the Autumn peak trading period and, since the start of H2 overall revenue trends have been similar to the first half. We are on track with our plans for the business and our expectations for 2023 are unchanged. We remain confident of delivering growth ahead of our markets, while generating strong cash flow, and attractive returns for shareholders over the medium-term”.

 

Volution Group (FAN, 382p, £755m)

International designer and manufacturer of energy efficient air quality systems. FY (Jul) trading update.

Guidance: “Volution has continued to make good progress and the Board expects adjusted EPS to be towards the top end of current market forecasts [23.7 – 25.6p; consensus, 24.4p]”. Rev growth c. 5%, constant currency. Operating margins maintained at c. 21%. Operating cash conversion expected to be above targeted 90% and leverage at YE below 1.0x “with ample headroom for continued M&A”.

Trading: “The UK has delivered our highest rate of organic growth, with residential revenue performing particularly strongly. Public refurbishment RMI has benefited from increasing demand arising from the heightened awareness of health risks associated with mould and condensation; private RMI demand has proved resilient whilst also delivering well on price; and new build revenue has benefited from key account wins and regulatory underpinnings.  Continental Europe has softened in the second half of the year with Germany in particular affected by a contraction of new build activity and the Nordics impacted by both new build weakness and some earlier, but now completed, destocking in the refurbishment market.  By contrast ClimaRad and ERI have continued to perform strongly. Revenue growth in Australasia has slowed this year after a number of years of very strong growth”.

Outlook: “Structural growth drivers remain supportive and, although general end market sentiment is weaker, we continue to see high levels of interest in our wide range of low carbon ventilation solutions, driven by consumer awareness of the importance of indoor air quality, and the regulatory back drop focused on decarbonising buildings”. FY results, 5 October.

The Alumasc Group (ALU, 153p, £55m)

Sustainable building products, systems and solutions provider. FY (Jun) trading update.

Guidance: “Despite a challenging UK construction sector backdrop through recent months, the group has further demonstrated its resilience with a robust commercial and operational performance in the second half. The group expects to report revenue from continuing operations of approximately £89m, in line with the prior year and underlying profit before tax from continuing operations in line with Board and market expectations [£11.2m]. Net debt is expected to be approximately £3m, 0.2x EBITDA.

Trading: “A continued focus on customer service and new product development, combined with cost management and operational efficiencies, have enabled Alumasc to grow in several of its commercial markets through share gains and adjacent product launches. This was achieved despite demand weakness in new build residential markets and the delays to a small number of overseas projects. Operating free cash flow generation in the second half improved relative to the first half, as working capital and inventory levels normalised, offset against higher capital expenditure in the fourth quarter”.

Outlook: “The Board remains confident in the group’s medium and long-term prospects within its commercial end markets, and continues to invest in sales and customer service, product development capability and operational efficiency projects. With the majority of revenues directly linked to sustainability, and operating in fragmented niche markets providing growth opportunities, the group remains well positioned to deliver long term shareholder value, which will be accelerated when market conditions improve”. FY results, 5 September.

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