Blow-out 2nd half with more to come
One of the benefits of a public listing is that it provides a vital source of capital for businesses like Telford Homes. Indeed, since Jan’12 it has raised £70m in 2 tranches (£50m Oct’15 & £20m Jun’13) to develop thousands of desperately needed, high quality, affordable properties within inner London. In return, shareholders have seen PBT climb from £3.0m in FY12 to £46.0m today, and been rewarded with a 475% appreciation in the stock from 79p to 460p. Which, when added to 75p of dividends, equates to an average annualised gain of 34% pa.However, there was always going to be a time when growth would moderate. Don’t get me wrong, we’re not envisaging a contraction. Simply a 2-3 year “consolidation†phase, whereby EPS increases at a more realistic rate. Namely +10.4% to 55p in FY19 (vs 49.8p), and thereafter by single digits. Before forging ahead once again from FY22, as Build-To-Rent (BTR) becomes a bigger slice, and margins revert back to through-cycle norms.
What were the key messages from this morning’s record FY18 results? Well, after a blow-out H2’18 - where PBT came in at £37.3m (H1 £8.7m) on revenues up 15.6% YoY to £216.9m (£99.3m) - management reiterated their confidence in achieving FY19 PBT of £50m+, implying a return on equity (RoE) of >15%. FY18 PBT at £46.0m (up 34.9% on LY) was slightly above consensus vs our estimates of £44.6m. Driven by 3.3% higher EBIT margins (adjusting for capitalised interest) to 16.7%, thanks to favourable sales mix, lower than anticipated build costs and 8.3% top line growth to £316.2m.
Telford has suffered a few planning delays of late - albeit we think the medium to long fundamentals of the capital’s housing market is supportive. London continues to build nowhere near enough homes to satisfy demand. In fact, according to the latest government data (source: MHCLG), annualised housing starts in the 32 London boroughs were ~17,000 units in FY17, compared to an average population growth of 85k pa between Mar’97-Mar’16, to 8.7m
More people are looking to rent - not just because of the elevated prices, but also increasingly through choice. Which is one of the reasons why BTR is such a neat solution. Offering quality facilities/service, security and in some cases extended leases to tenants, together with more communal/friendly environments.
Bearing all this in mind, we nudge up our valuation from 500p to 535p/share, based on the FY18 out-turn, and belief that Telford should be valued at least in line with its peers, who presently sit on ‘price : net tangible assets’ and PE multiples of 1.8x and 10.1x respectively.
Springfield Properties is engaged in developing a mix of private and affordable housing in Scotland. Co. operates through two divisions: Private Housing and Affordable. The Private Housing division develops smaller to medium sized developments in Scotland, as well as a small number of larger sites. The Affordable division's operations focus on the development of land into stand-alone sites which consist entirely of affordable homes.
Telford Homes is a developer of residential-led, mixed use sites in London. Co.'s customers include individual investors from the U.K. and overseas, owner-occupiers and housing associations. Co. is working with institutional investors in the build to rent sector. Co. has only one reportable segment being housebuilding in the U.K.
Watkin Jones is a holding company. Through its subsidiaries, Co. is engaged in the property development and the management of properties for multiple residential occupation. Co. operates in the following segments: student accommodation, which is engaged in the development of purpose built student accommodation; build to rent, which is engaged in the development of build to rent accommodation; residential, which is engaged in the development of residential property; and accommodation management, which is engaged in the management of student accommodation and build to rent property.
Equity Development enables companies to become better understood and supported by investors. Since our launch in 1996 we have consistently focused on helping our clients improve their communication and relationships with both existing and potential shareholders. Our clients have come from a wide variety of sectors and domiciles, are both private and quoted and range in size from micro-cap to $multi-billions. We offer free access to company research notes written by experienced analysts. These notes include detailed forecasts, financial models and a fair value. We host regular Private Investor Forums at which investors have the opportunity to hear company directors present, and to ask questions. These are free to attend. We broadcast live Webinars with company management that include active Q&A. We also make the recordings available online. We arrange face to face meetings between private investors and company management. We are active users of Twitter, commenting daily on company news, share price moves, Directors’ Dealings, Equity Development Research Notes & Events.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.