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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November 15, 2023

WJG, GEN, PCA, WHR | Economy – Inflation data pointing to housing market turning point | News – Residents evacuated over structural fears

Company news

Watkin Jones (WJG, 45p, £m) – WJG is a client of PERL

Residential for rent developer and manager in the build-to-rent (BTR) and student accommodation sectors. CEO appointment. Alex Pease appointed CEO with immediate effect. He joined WJG in 2010 and took on the role of Group Investment Director in 2013. He was appointed Chief Investment Officer in 2021 and joined the Board in 2022.  According to the statement, since 19 July, he has been the Interim CEO, leading the business through a critical period during which the markets in which the Group operates have faced significant challenges, successfully concluding the sale of three non-core private rented sector (PRS) assets, taken action to better align its cost base and made progress against a number of important operational initiatives. Chair Alan Giddins said: “As Interim CEO, Alex has shown his ability both to lead Watkin Jones and think strategically about the future direction of the business.  While the Board ran a full search process, which included a number of strong external candidates, it was clear that Alex was the outstanding candidate for the role”.

Genuit Group (GEN, 292p, £728m)

Manufacturer of sustainable water, climate and ventilation products for the built environment, formerly Polypipe. Trading update, 10 months to Oct.

Guidance: “Trading in the prior four months has been in-line with management expectations. Full year [Dec] 2023 adjusted operating profit is expected to be marginally above market expectations [£89.7m]”.

Trading: Rev -4.8%, £504m, with c. 11% decline in volume partially offset with new product launches and commercial management, including international expansion. Sustainable Building Solutions division rev -12%, £210m, with “actions to reduce lower margin and non-core business in line with business simplification objectives”. Water Management Solutions unch, £149m, “following resilient demand for drainage and stormwater attenuation products”. Climate Management Solutions +5.3%, £139m, “driven by strong demand in the Nuaire ventilation business, which more than offset reductions in sales at Adey due to the softness in the gas boiler market”. The group is on course to deliver a further £7m of annualised savings in addition to the £8m previously announced from business simplification and other self-help measures. Capital expenditure for FY (Dec) 23 expected to be less than £40m, and focused on business simplification, organic and sustainability-linked growth projects with net debt to EBITDA of c. 1.1x, from 1.3x at 30 June 2023.

Outlook: “We have made good progress over the last four months, with demand in our drainage, storm water and ventilation markets holding up well, supported by structural and sustainability growth drivers. Our continued focus on simplifying the business and driving operating efficiencies means that we are well positioned to navigate the current uncertain environment and benefit from incremental margin improvement when volumes return to more normal levels”. Strategy progress update, 22 November.

Palace Capital (PCA, 220p, £83m)

Diversified UK regional commercial property REIT. HY (Sep) results and board change. Adj PBT -34%, £2.3m; IFRS loss before tax, £0.2m (HY 22, -£12.4m); adj EPS -30%, 5.5p; interim div +7.1%, 7.5p; TNAV, -0.7%, 294p; net debt, £8.9m (£5.5m); LTV, 9% (31%).

Trading: “We continue to make good progress in achieving disposals at values ahead of book enabling us to further reduce debt and leverage as we deliver on our strategy of maximising cash returns to shareholders. Proactive balance sheet management ensures Palace Capital is in a strong financial position, with net debt currently at £7.7m and leverage at 6.5%”.

Outlook: “The company is in a strong financial position and its current low leverage of 6.5% provides it with the flexibility and optionality regarding the timing of further disposals and other strategic initiatives, including various options for returning capital to shareholders. At an operational level, the company continues to make good progress with its asset management activities notwithstanding the difficult and uncertain conditions in financial and property markets. It is expected that further progress regarding disposals and options for returning capital, including a potential tender offer, will be announced in a Trading Update during the first quarter of 2024”.

Board change: “Matthew Simpson, CFO, and the Board have agreed that now is the right time for Matthew to step down from the Board. The Company’s financial circumstances (including cancellation of bank facilities and reduced portfolio size) mean that the CFO role is significantly reduced and therefore no longer requires the level of expertise and skillset that Matthew contributes. Going forward, the financial operations of the company will be managed by the Financial Controller and Financial Planning Analyst with operational oversight by Steven Owen, as Executive Chairman”. Next news, general meeting to authorise the company to purchase a further 15% of shares in the market, 4 December.

Warehouse REIT (WHR, 87p, £368m)

Specialist warehouse investor. HY (Sep) results. Gross property income -3.3%, £23.3m; IFRS PBT, £22.0m (HY 22, loss £46.4m); EPRA EPS -62%, 1.0p; interim div unch, 3.2p; portfolio valuation, £811m (£829m); EPRA TNAV, 124p (123p); LTV, 34.0% (33.9%). Trading: ERV -2.4%, £52.0m; occupancy, 96.0% (95.8%); equivalent yield, 6.3% (6.5%).

Outlook: “The Board believes our focus on multi-let space in key industrial hubs in the UK is one of the best places to be in real estate. We benefit from supportive long-term trends, including online retail and supply chain. Based on our recent trading, we would expect ERV growth for the year [to March] to be in the region of 5 – 6%. We firmly believe in the quality of our assets and their potential to deliver an attractive total return over the long-term but are also examining more immediate opportunities to drive returns for shareholders”.

Economic data

House prices. Average UK house prices decreased by 0.1% to £291k, in the 12 months to September (non-seasonally adjusted, provisional estimate), down from an increase of 0.8% (upwardly revised) in the 12 months to August, according to the ONS, the most comprehensive, bringing in completed mortgaged and cash transactions. The regional figures were: England -0.5%, £310k; Wales -2.7%, £215k; Scotland, +2.5% £195k; Northern Ireland +2.1%, £180k. The North East saw the highest annual percentage change of all English regions, +1.6%, while the South West saw the lowest, -1.6%. Next release, 20 December.

Inflation. The headline CPI non-seasonally adjusted Y/Y rate of inflation, as measured by the ONS, fell from 6.7% in September to 4.6% in October, beating economists’ consensus expectations of 4.8%, and meeting the Government’s objective of halving the rate this year two months early.

Viewpoint: Housebuilders’ shares are off to the races again today (following yesterday’s, in the wake of reassuring wages data). It raises the prospect of rates reversing mid-2024 (or earlier), notwithstanding Bank of England Governor Andrew Bailey’s recent attempts to caution over-exuberance. Anecdotal evidence is beginning to amass that October could be the month when the market turned …


In other news …

Building safety. Bristol tower block evacuated over structural safety fears, Around 400 residents living in a tower block in Bristol have been evacuated from their homes due to a “major structural fault”. The 1958-built Barton House block has recently been subject to a number of surveys to assess options for the future of the building due to its age and method of construction. The surveys undertaken to three flats out of the 98 in the block indicate that in the event of a fire, explosion or large impact, there is a risk to the structure of the block.

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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Opinions contained in this communication represent those of PERL and/or our affiliates at the time of publication and PERL does not undertake to provide updates to any opinions or views expressed. PERL does not hold any positions in the securities mentioned in this communication, however, PERL’s directors, officers, employees, contractors and affiliates may hold a position,  and/or may perform services or solicit business from, any of the companies or related securities mentioned.

Any prices quoted in our research are as at the previous day’s close.