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.

January 26, 2024

WIX | Economics – Rent rises (finally) meet affordability ceiling, Rightmove | News – Lords slam wasted millions on modular homes | Fortnight ahead

Company news

Wickes Group (WIX, 145p, £363m mkt cap)

UK DIY retail chain. FY (Dec) trading update.

Guidance: “Full year sales of -0.3% were in line with prior year.  Cash at the year-end was £97.5m, in line with guidance, reflecting strong cost and stock control.  Given our working capital cycle, average cash across the year was £155m. Adjusted PBT for FY23 is expected to be at the upper end of market consensus range of £44.9 – 48.3m”.

Trading: Y/Y LFL sales: Q1, -1.8%; 2, +3.0%; 3, -0.5%; 4, -2.6%. Core (product sales to trade and DIY customers) – “We delivered a good performance in Core in 2023 with LFL sales in line with the prior year.  The fourth quarter saw positive LFL sales growth of 1.2% representing the third consecutive quarter of growth, driven by positive volume growth, with slight selling price deflation. Double digit growth in TradePro sales continued in Q4, underpinned by strong growth in our customer base. DIY sales remained moderately down year-on-year in Q4, however we experienced strong volume growth in a number of strategically important categories including timber, joinery, decorating and flooring. Once again, our market share increased in 2023 and is significantly up on a three-year view, despite a decrease in store numbers. Do-It-For-Me (projects led by Design Consultants) – DIFM LFL delivered sales were slightly down for full year 2023. The Q4 LFL sales decline of -13.7% reflected a more subdued consumer environment for larger projects, as well as delivery delays from the new software implementation (noted in our Q3 trading update). This software issue has been addressed and will not impact delivered sales in 2024”.

Outlook: “During the first few weeks of Q1, trading in Core has been in line with the prior year. In DIFM, we expect delivered sales in Q1 2024 to be lower year on year, as a result of the expected normalisation of the order book post-Covid and fewer new leads in the market.

Economic data

Lettings market

Rents continued to rise in Q4 but at the lowest rate in five years, as affordability constraints curtailed a lengthy period of growth, according to Rightmove’s Rental Price Tracker. The Q/Q increase in advertised rents outside London slipped from +3.8% in Q3 to 0.2% during the quarter to a new record of £1,280 per calendar month (pcm), the smallest quarterly increase since 2019. Advertised rents are now 9.2% higher than last year (Q3, +10.0%) – the lowest Y/Y growth in rents since 2021. London rents also hit a new record of £2,631, rising by 0.2% in Q4 (Q3, +2.4%), Y/Y growth of 6.1% (Q3, +12.1%).

Outlook: Rightmove predicts average rents will rise by 5% outside of London in 2024 and 3% in London. The trend of supply improving and tenant demand easing has continued into 2024: the number of tenants sending enquiries to letting agents to move is 13% lower than the same period last year, while the number of new rental properties coming onto the market is 7% higher. The average number of enquiries agents are receiving for every available rental property is currently 11, which whilst still much higher than the four at this time of year in 2019, is down from 14 last year. “There are also signs that more tenants are hitting an affordability ceiling, with nearly a quarter (23%) of rental properties needing a reduction in advertised rent, compared with 16% at this time last year,” according to Rightmove.

Av asking rents UK

In other news …

Modular construction

The Government has wasted millions of pounds of taxpayers money backing volumetric offsite firms, according to a House of Lords investigation, ConstructionEnquirer.com. The Lords Built Environment Committee said that the government approach to modern methods of construction (MMC) had been left in disarray after the high-profile failure of three major industry players. The committee warned that while Category 1 (modular MMC) had clear benefits in the multi-rise market, it was still unclear whether it was more cost-effective than traditional building methods for typical two and three-storey homes. The report said millions of pounds of public money has been invested, but the money has not been backed by a coherent strategy and set of measurable objectives. The committee said it was concerned that the Government’s MMC Taskforce, which was allocated £10m and was expected to take forward work on data and standards, had never met. The inquiry was established following the collapse and closure of several MC companies during 2022 and 2023, including Ilke Homes, L&G Modular and Homes by Urban Splash. Committee chair Lord Moylan said: “The Government needs to change tack. Simply throwing money at the sector hasn’t worked. If it wants to encourage MMC it must acquire a much deeper understanding of how it works, develop a clear strategy, and demonstrate leadership”.

 

Fortnight ahead

260124 fortnight ahead
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