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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January 23, 2024


Company research

Watkin Jones (WJG, 53p, £135m mkt cap) – WJG is a client of PERL

Residential for rent developer and manager in the build-to-rent (BTR) and student accommodation sectors. FY (Sep) results. Link to Progressive Equity Research note, FY results in-line, guidance maintained:

“Watkin Jones’s FY23 results, to 30 September, were closely aligned with guidance in its October trading update, with adjusted loss before tax slightly lower than our estimate and net cash higher. Booming demand continues to push up rents and the forward-funding market is ‘showing early signs of recovery’. The group is maintaining its guidance for FY24E and is seeking to diversify revenue and boost performance in its core markets.”

Company research

Crest Nicholson Holdings (CRST, 205p, £526m)

South East focused mixed tenure housebuilder. FY (Oct) results, Board changes. Completions -26%, 2,020; rev -28%, £658m; op margin, 6.7% (FY 22, 15.4%); adj PBT -70%, £41.4m; stat PBT -30%, £23.1m; adj EPS -71%, 12.3p; div unch, 17.0p; net assets, £856m (£883m); net cash, £65m (£276m).

Trading: Sales per outlet week, 0.52 (0.60); average outlets, 47 (54).As previously announced, additional costs of £5.5m were recorded at year end relating to Farnham and other legacy and low-margin sites; an exceptional charge of £13m was recognised in respect of a legal claim recently received relating to 2021 fire damage of a low-rise bespoke apartment scheme built by the group. Building safety provision, £145m (£141m). During the year, the group increased investment in WIP and land compared to FY 22. 3,864 plots, (2,771) were approved at a forecast gross margin of 25.2% with planning approvals underway. An operational review was completed during the period: pace of growth moderated in Yorkshire; East Anglia division incorporated into the existing Eastern division; headcount and resources in existing divisions aligned to the expected level of output in FY 24; overhead reduction of £3m implemented for FY 24.

Outlook: Forward sales -14%, 1,732. “We expect trading conditions will improve towards the second half of 2024 with a strong pipeline of private rented sector and registered providers. It is encouraging to see the reduction in mortgage rates, and despite the seasonal lull, as expected we have seen some uptick in customer activity. The strength of our land portfolio, supported by recent investment, means we will be highly selective in land acquisitions and will apply a rigorous approach to work-in-progress to align with expected sales rates. Our focus in 2024 is to drive sales and margins growth, controlling costs, obtaining timely planning consents, restoring five-star customer services and continue to maintain a robust balance sheet”.

Board changes: Peter Truscott is to retire as Chief Executive and member of the Board, to be succeeded by Martyn Clark, Chief Commercial Officer at Persimmon later in the year; Mr Truscott will remain with the business until a handover process is completed. He joined Crest Nicholson in 2019 as Chief Executive having worked in the sector for over 30 years, repositioning the group’s strategy, and leading the business through the pandemic and adapting to changing market conditions. Mr Clark has been with Persimmon for nine years in senior roles in the South Division including Regional Chairman before his appointment as CCO in 2022; prior to that he spent 28 years at Bloor Homes.

Vistry Group (VTY, 935p, £3,219m)

Formed from the mergers of Bovis Homes and housebuilding and partnerships divisions of Galliford Try (GFRD) and Countryside Partnerships. Countryside Partnerships selected by the Greater London Authority and the Mayor’s Office for Policing and Crime (MOPAC) as the preferred developer to deliver 739 new mixed-tenure homes in Colindale, Barnet, as part of a £276m GDV scheme. This comprises 427 affordable homes, 144 build to rent homes and 168 homes for private sale, subject to planning approval. A proportion of the affordable shared ownership homes will be offered to the City of Westminster as part of a wider planning portfolio agreement which commits to achieving 50% overall affordable housing across three sites owned by MOPAC. Affordable housing will be delivered for, and operated by, one of Vistry’s registered provider partners in accordance with the Mayor of London’s requirements. The project will transform the last two sites on what was formerly the Hendon Metropolitan Police training centre and driving school in Colindale into five buildings housing 739 new homes and multiple recreational spaces and will also deliver community and retail facilities including a new nursery and social enterprise. Work is anticipated to start on the site in summer 2025 and is scheduled for completion in 2030. Colindale is the 34th major development currently being progressed by Vistry in London.

Henry Boot (BOOT, 210p, £281m)

Land Promotion, property investment & development and construction group. FY (Dec) trading update.

Guidance: FY 23 – “Despite challenging conditions for our three key markets, our ongoing focus on high quality land and development in prime locations resulted in a resilient performance in 2023. We therefore expect profit before tax for the year to be in line with current market consensus [£37.2m]. Furthermore, we have maintained a strong financial position and continued to invest in the business to ensure we are well placed as our markets begin to recover”. FY 24: “The group is well positioned to benefit when our end markets recover, however we expect there will be a lag in performance due to the time it takes for projects and sales to complete. Whilst it is encouraging that sales rates have improved within Stonebridge Homes (SH), and we expect this trend to continue, we are now more conservative with our estimates of completions for 2024 and anticipate the impact from a recovery in residential sales will be more weighted to 2025. Due to extended payment profiles with major housebuilders on strategic land sales, we anticipate gearing to remain towards the upper end of our optimum range of 10 – 20% through 2024, and given the higher interest rate environment, we anticipate this will also impact profit for the year ahead. Taking these factors into consideration, the Board now expects profitability for 2024 to be significantly below current market consensus [£37.2m]. Notwithstanding this the Board continue to believe that Henry Boot remains well placed to achieve its medium term growth and return objectives”.

Trading: Hallam Land Management continued to grow its land bank and during the year secured 18 new sites which have the potential to deliver c.7,212 plots. The total portfolio has increased to 100,972 plots (FY 22, 95,704 plots) of which 8,501 plots have planning; HLM remains on course to achieve its medium term target of disposing an average of 3,500 plots pa. Henry Boot Developments has performed ahead of expectations, with continued growth of its completed schemes to a GDV of £126m (HBD share £111m; FY 22, £83m), of which 100% have been pre-let or pre-sold. The committed development programme now totals a GDV of £299m (HBD share, £159m) and is currently 48% pre-let or pre-sold with 98% of development costs fixed. SH completions +43%, 251 homes (2022: 175), in line with its medium term target of delivering 600 units. “The UK housing market was relatively subdued throughout last year, however the focus on premium homes in prime locations allowed SH to achieve its annual sales target”. Reservations rate 0.46 homes per site per week in Q4 (Q4 22, 0.36). Land bank, 1,513 plots (1,094), of which 923 plots have detailed or outline planning. Henry Boot Construction “traded below expectations in 2023 but remained profitable”. Performance on two significant projects were impacted by the availability of materials and the resultant delays. Banner Plant traded slightly below budget in 2023 and in response has adjusted its sales strategy. Road Link has traded in line with expectations. FY results, 25 March.

Eurocell (ECEL, 127p, £142m)

UK retailer and manufacturer, recycler of PVC windows and doors. FY (Dec) trading update.

Guidance: “The trends reported at our half year results in September continued for the remainder of 2023, with some further modest weakening in our key markets. Against the challenging market backdrop, we have delivered some resilience in the group’s sales performance for the year. We continue to focus on closely managing cost and cash flow and, as expected, have seen some easing of input cost pricing in H2. Despite these challenges, we are pleased to confirm that we anticipate underlying profit before tax for the year to be in line with market expectations”.

Trading: “Repair, maintenance and improvement activity continues to be impacted by low consumer confidence and higher costs of living. The ongoing steep decline in new build activity reflects successive interest rate rises and falling house prices, with house builders reducing build rates in anticipation of falling sales”. Group sales -4% Y/Y (H1, -2%; H2, -6%); Profiles division -4% (-1%; -8%); Building Plastics -4% (-3%; -6%).

Strategy: “As reported in September, we have been reviewing our strategy, including the optimisation and expansion of the branch network, an enhanced customer proposition and simplified business structures. We expect to report the conclusions from our review at the time of our 2023 full year results announcement”. £5m share buyback programme announced. FY results, 20 March.


Great Portland Estates (GPE, 406p, £1,031m)

London office and retail property group. Q3 (Dec) business update. Leasing – “strong leasing continued”, 10.4% ahead of ERV. 12 new leases and renewals signed (including eight fully managed deals) generating annual rent of £5.0m (GPE share, £4.1m), with market lettings on average 6.5% ahead of March 2023 ERV; and a further £6.0m of rent currently under offer. Two committed HQ developments “progressing well” – pre-let net-zero carbon 2 Aldermanbury Square, completion anticipated Q1 2026; vacant possession obtained ahead of major office-led redevelopment of French Railways House, SW1, to provide 67,600 sq ft (up from 54,700 sq ft) of new Grade A space; scheme anticipated to deliver profit on cost of 24.9% and development yield of 6.5%. Preparation ongoing for two profitable near-term HQ schemes – commencement of Minerva House, SE1  extensive refurbishment anticipated this quarter to deliver 143,100 sq ft of new Grade A offices with river frontage. Planning permission to be refined at 91,000 sq ft new build redevelopment of Soho Square Estate, W1 ahead of potential start in Q1 2025. Combined healthy returns expected: anticipated profit on cost >18%; development yield >6.0%. Further Flex expansion – commitment to refurbishment of 141 Wardour Street, W1 for 29,900 sq ft of new Fully Managed space; anticipated profit on cost >19.0%; yield on cost >6.5%.

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