‘The Mozart’ of the property world
Buying the best rarely comes cheap - albeit occasionally, the market offers up quality stocks at compelling prices. Enter Watkin Jones, a UK developer & manager of large, multi-occupancy accommodation - mostly student bedrooms (PBSA) and/or apartments for young professionals (BTR) – trading on a modest 13.2x FY19 PER and paying an inflation busting 3.8% yield.This morning the company uncorked another virtuoso set of results, with FY18 turnover (£363.1m up +20.3% vs LY), PBT (£50.1m, +15.7%), EPS (16.0p, +13.8%), dividends (7.6p +15.2%, 6.6p) and net cash (£80.2m +95.5%, worth 31p/share) all coming in ahead of our forecasts. Primarily thanks to a standout performance from PBSA - £60.7m gross profit (equivalent to 84% group) on sales of £321.7m (margin 20.0% vs 21.0% LY), where 10 developments were completed covering 3,415 beds (3,314 LY) - ably supported by composed displays from the other 3 smaller divisions.
YTD’19 trading is shaping up to be another record too, on the back of healthy growth/returns from PBSA & BTR vs most other fixed income assets. Sweet music indeed, especially for liability orientated investors (eg pension funds). In fact, only last week bell-weather student property landlord Unite, said that the Dec’18 values of its UK and London portfolios had jumped 5.0% and 8.4% respectively YoY, augmented by estimated 2019 rental yields of 3.0%-3.5%. Not bad, considering overall UK property returns are predicted to be 1.9% in 2019 and c.2.9% pa over the next 5 years (source: CBRE).
Shareholders should not forget that WJG’s generates best-in-class asset turns (2.4x vs sector 1.4x) and RoE (23.8% vs 17.3%), mirroring its successful forward funded model. At 213p, the stock trades on FY19 PE & EV/EBIT multiples of 13.2x and 9.0x, along with offering a 3.8% dividend yield . In our view, a deserved premium to peers in light of its superior cash generation, asset efficiency, sales visibility and risk profile.
The new CEO 'remains confident in the outlook for the Group' and on a sum-of-the-parts basis we raise our valuation of the shares to a comfortable 240p.
Inland Homes is engaged in land regeneration business, focusing on developing sites in the south and south east of England. The principal activity of Co. is to acquire residential and mixed use sites and planning consent for development. Co. develops a number of the plots for private sale and sells consented plots to housebuilders.
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.
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