Watkin Jones: Building Value
Watkin Jones is one of the UK’s leading property development companies involved in two of the hottest areas of residential real estate, namely the purpose-built student accommodation (PBSA) and private rented sector (PRS) segments. Watkin Jones is very well positioned to grow market share and profits despite operating a very low risk and working capital light business model.The long term fundamentals for PBSA are very positive with growing student numbers, strong demand for quality accommodation and institutional investors hungry for exposure. In PBSA, Watkin Jones enjoys excellent visibility of revenues, profits and cashflow through a combination of a strong development pipeline and a forward sales model. It also has an exceptionally good delivery track record and of gaining planning consents. The company's Fresh Student Living business offers vertical integration for the company within the student accommodation market and offers an end-to-end solution for institutional investors.
The PRS business is very well positioned to take advantage of continued rising demand for developments within the private rented sector. The company aims to operate along the same lines as its PBSA business, by developing a strong pipeline and forward selling to institutions. The growth opportunity could be significant in the medium term.
Watkin Jones trades on 11x PER for September 2017 with a 4.3% dividend yield. For the following year Watkin Jones’ PER falls to 10x and a yield of 4.5% This appears very undemanding given the group’s consistent long term record of growth, its strong cash generation, and its excellent medium term prospects as a leading developer within the growing UK student accommodation market. Watkin Jones currently trades at a 14% premium to the Housebuilding sector on PER but we would argue that this is too small a premium at this stage of the cycle. We conclude that Watkin Jones offers considerably better medium term visibility and growth than the average Housebuilder and should therefore trade at a 30-50% PER premium to the sector.
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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