On track for another record year
Watkin Jones (WJG) provides the end-to-end development and management of large scale, multi occupancy accommodation, focusing on purpose built student accommodation (PBSA) and residential build to rent (BTR).According to 4 respected economists (Jorda, Knoll, Kuvshinov, Schularick, and Taylor), UK housing has delivered annualised real returns (net inflation) of 5.6% between 1870-2015 and 6.8% since 1980 – split roughly 60:40 capital:rental – vs 2.8% and 4.7% pa respectively for bonds. Better still, when included in a basket of 16 major OECD countries, residential property has also been considerably more stable than equities. Never failing to increase in value over a 5-year period, and generating the highest risk-weighted gains of any asset class.
Sure, certain well-heeled Central London neighbourhoods have been experiencing price deflation of late. Yet for Watkin Jones’ bread-and-butter of supplying purpose-built student accommodation, conditions remain buoyant. Underpinned by favourable demographics, healthy capital inflows and robust demand from international students (eg from China & India) who typically seek quality living space.
Looking ahead we expect these trends to be sustained, and believe similar dynamics are taking root in the fledgling residential Build-to-Rent market. And this morning the Board released a positive trading statement for the 6 months ending March 2018, adding that demand remains strong, and H1 results (due on 22nd May) would be in line with FY18 expectations.
WJG has a development pipeline of >9,800 student beds (vs 9,120 Sept’17), of which around 8,300 (or 85%, up from 7,497 at y/e) possess planning permission. All sites due for delivery this academic year (3,415 beds) have been forward sold with another 5 (2,675 beds) slated for 2019/20. Thus providing excellent forward visibility.
We make no change to our forecasts, supported by circa 80% GP cover (ED estimate) for FY18. We calculate the stock is worth 225p/share - representing a deserved premium to peers, thanks to its superior RoE, lower risk profile, robust cashflows and exposure to numerous secular trends.
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.
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