Wonderful business at attractive price
What makes a great stock? Well according to legendary investor Warren Buffet, it is buying a “wonderful business at a fair priceâ€. A maxim that we believe rings true for Watkin Jones, who today issued another positive set of results.FY19 turnover climbed 3.2% to £374.8m (£363.1m LY), with the dividend hiked 9.9% to 8.35p (7.6p LY & 2x covered), reflecting robust cashflows and closing net funds of £76.8m (£80.2m LY), equating to 30p/share.
Elsewhere gross profits rose 6.0% to £76.8m (margin 20.5%) with student accommodation delivering the lion’s share at £51.6m (vs £60.7m LY), but ably supported by Build-to-Rent (£13.2m vs £1.0m LY), residential housing (£7.7m vs £4.4m) and Fresh lettings (£4.6m vs £4.5m). EBIT margins ticked up too, to 14.0% (13.7%) thanks to tight cost control, with adjusted EPS climbing 4.6% to 16.7p (16.0p).
I guess we shouldn’t be surprised though, since the adjusted 29.9% RoE (FY19 average) far exceeds WJG’s cost of capital, mirroring its capital-lite model, 1st class execution and the secular tailwinds underpinning its two core markets of PBSA and BtR.
Indeed we believe disciplined capital allocation is a key theme that is unlikely to change anytime soon, given the extensive experience of the executive team, and the careful guidance offered by the Watkin Jones family (18% stake).
Going forward, management see plenty of opportunities, on the back of a chronic shortage of UK housing, increasing business confidence, a ‘Golden era’ for BtR, low interest rates and a catchup in investment after December’s General Election.
We keep our FY20 forecasts and 300p/share valuation unchanged, but look forward to further news as the year progresses.
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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