Market Commentary - Housing, Infrastructure, Construction and Services 24th March 2017
Henry Boot, the small property, construction and land development company provides us with its finals to end December 2016 this morning. The sector had a spring in its step yesterday as it recovered some of the fall of the two previous trading sessions.
Henry Boot, the small property, construction and land development company provides us with its finals to end December 2016 this morning. The company has been indicating for some months that it had a very good 2016 and the numbers this morning bear that out. Revenue was up 74% last year to £307m and PBT was up 22% to £40m. The main area of improvement was in property investment and development where revenue rose to £176m from £50m in the prior year as several major projects came through but clearly margins were not as high as in 2015 as operating profit only doubled (!) to £15m; the company is quite conservative in profit recognition. The read across from all three divisions is positive for the sector and the company is not flagging any real concerns, 2017 has started well so no blots on the landscape for Henry Boot.
The sector had a spring in its step yesterday as it recovered some of the fall of the two previous trading sessions. Doubts persist about the macro picture as evidenced by Carillion’s and Kier’s concern about progress on major construction projects, other comments and delay in work in some areas and lots of evidence that the housing market is at or is getting nearer a cyclical peak. There is no cliff edge in sight of course and avoiding anything like it is optional at present. Grafton moved 4.7% higher yesterday and has been tearing ahead since its results meeting even though there were elements of caution in its statement about UK progress. Consensus forecast show 47p of EPS for this year and the stock closed at 685p last night so the valuation is reasonably full at 14.6x p/e but the risks are now seen on the upside. The FD buying stock at 656p (a short £50,000 worth) helped with sentiment we suspect. Kier also moved up at a fast pace rising 3.8% to 1508p following a solid set of results which we discussed yesterday. We attended the results meeting and the level of confidence seems high and of course with its wide range of activity it has options; going a long way back to just after it floated the CEO Colin Busby could always find a few areas of strength which ensured it met expectations if some areas had problems. Kier seems to have re-established that flexibility and adaptability.
Galliford Try slipped a little yesterday, down 2.3% to 1541p, for no obvious good reason other than the pure housebuilders wobbled as macro data was weak. The pursuit of Bovis continues as far as we are aware but there is obviously no formal news as yet. Bovis saw its share price slip to 885p yesterday from a close of 914p on Wednesday. The 3.2% slip in Bovis, a tad more that GFRD’s fall is probably not that significant but it suggests that Redrow, up 2.2% yesterday might be seen as a more likely candidate at the moment. The housebuilders that want to grow clearly run the slide rule over the smaller guys all the time, that is normal but Redrow looking at Bovis goes back further than most and the geographic, market positioning and product ranges are compatible. There is logic for both Galliford and Redrow to combine separately with Bovis in our view. The Bovis board’s task is to decide whether it’s better to go alone and if not which combination will look best in 2/3 years’ time, as both proposed bids are all or mainly all shares. There is no sign of another interested party that might break any deadlock.
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