WHI Morning Comment: Henry Boot (BOOT) - Outperform (Buy)
Year end update: strategy continues to deliver, pipeline strong BOOT's year end update this morning reflects positive trading during 2019, with the very sizeable (£333m) Aberdeen project to the fore, resulting in a generally encouraging year, albeit very slightly short against original expectations – effectively as a result of divestments. The company is a leader in land development across the UK, and its model remains as relevant as ever. Hence the positive performance in particular from Hallam Land, which succeeded in delivering significant site volumes. The company's development division, Henry Boot Developments (HBD), traded well despite last year's inevitable uncertainties. Construction and BOOT's rental business also performed well, and the acquisition of Starfish Commercial in Q3 (balance acquired in December) reflected BOOT's commitment to the affordable housing market. With some rental income foregone following retail divestments, our forecasts are marginally shaved; however bearing in mind the lengthy pipeline, we continue to see meaningful longer term opportunities for the group, retaining our 365p price target. Cash at c.£30m is well ahead of expectations.
20 Jan 20
Sector Note - Support Group
Topic of the quarter: Since our first quarterly at the end of 2015, 14 of the 59 companies we included in our valuation tables have been bid for (one delisted and one rather high-profile company has gone bust) and there have been other bids outside of our watch list. Given that those tables were simply designed to show the range of companies present within the sector – not a hit-list of undervalued opportunities – the fact that 24% of them have been taken over is worth revisiting. The demise of Carillion, severe financial pressure at Interserve and warnings from the likes of MITIE, Capita and Serco have dominated news flow but it should be remembered that the sector is broad and highly varied both in terms of business model and performance. If the troubles of a minority of the sector drag down wider valuations, then there is evidence that there is an army of potential bidders (possibly reinforced by further weakness of sterling) ready to take advantage
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20 Dec 18
Small Cap Breakfast
Path Investments (PATH) -RTO of a 50 per cent. participating interest in the producing Alfeld-Elze II gas field located 22 kilometres south of Hannover in Germany. Offer TBA. Due late Aug. Kropz PLC-Intention to float by the emerging plant nutrient producer with an advanced stage phosphate mining project in South Africa and exploration assets in West Africa
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24 Aug 18
Topic of the quarter: It’s alive! Infrastructure and assets in general have traditionally been built to provide a fixed service and are maintained and renovated to a fixed schedule – dead and dumb. Technology will completely change this. Sensors and wireless networks have the potential to allow assets to ‘talk’ to us. These living, smart assets will be able to tell us when they need maintenance, how efficient they are being and provide the data that will directly influence their construction, availability and use. The implications for construction costs through to operating costs and the ability to service changing user needs are very significant. The Support Services, Construction and Technology sectors need to work together to maximise this potential, recognise and harness the power of data, and invest in and embrace change. These are daunting challenges in highly competitive markets where politics play a role, different skill sets (that are currently in short supply) are needed and shareholders are looking over management's shoulders. However, the prize for those companies who get it right is significant, and the risk from not changing much greater. There are positive early signs with Crossrail providing tangible examples of Smart Infrastructure using innovative sensors.
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04 Dec 17
Value being evidenced
The strong trading seen in H1 has continued into H2 to the extent that management now expects FY 2017E to be materially ahead of expectations. We have upgraded our FY 2017E EPS by 16% and highlight that, assuming no change to the economic backdrop, there remains upside to both FY 2017E and subsequent forecasts. We reiterate our view that our sum-of-the-parts analysis is well evidenced by both company and external transactions, supporting our 398p target price.
23 Oct 17
Since our first quarterly at the end of 2015, 12 of the 59 companies we included in our valuation tables have been bid for. Given those tables were simply designed to show the range of companies present within the sector, not a hit-list of undervalued opportunities, the fact that 20% of them have been taken over is worth looking at in more detail. At a time when warnings and share price collapses from the likes of Interserve, Carillion, MITIE, DX and Capita and Serco have dominated newsflow, it should be remembered that the sector is broad and highly varied both in terms of business model and performance. If the troubles of a minority of the sector drag down wider valuations then the evidence is that there is an army of potential bidders (reinforced by the weakness of sterling) ready to take advantage.
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26 Sep 17
Delivering and investing for growth
Henry Boot has reported a strong set of H1 results evidencing good growth and investment in opportunities that will support continued medium- to long-term progress. H1 EPS was up 10% and DPS up 12%. Despite the more uncertain macro backdrop, the group continues to see a high level of demand for land and housing, and the commercial development portfolio is delivering ahead of expectations. Allowing for some caution on the timing of completions and macro uncertainty, we leave our forecasts unchanged. We reiterate our view that a sum-of-the-parts analysis is well evidenced by external transactions and supports our 398p target price.
25 Aug 17
In light of the UK election, we highlight our favoured overseas earners, operators in defensive markets and those capable of taking market share, but our main topic is the structure of the UK employment market. The UK has the lowest unemployment rate since 1975 at 4.6%, and there are, consequently, fewer and fewer candidates to fill vacancies. This suggests recruitment companies may struggle to grow, but there are structural changes in the UK labour force that offer growth opportunities. Temporary labour continues to expand relative to the point in the economic cycle, its importance accelerating since 2008, and part-time labour has grown at twice the rate of full-time labour throughout both the last cycle and over the long term. There are, of course, specialist temporary recruiters, but the part-time market appears relatively untapped (at least by the quoted companies) despite being c.5x the size of the temporary segment in terms of numbers.
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19 Jun 17
The ultimate scarce resource – land
Henry Boot was established 130 years ago and has built a strong and consistent track record. Over the past 20 years, total shareholder return averaged 10.6% p.a. significantly in excess of the 6.4% p.a. from the wider UK market. The culture and processes that enabled these returns are deeply embedded and coupled with land holdings that we believe are worth £809m and current development work worth a gross £800m+ are set to produce further above average returns into the long term. We initiate with a Buy recommendation and 398p price target.
15 May 17
N+1 Singer - Small-cap quantitative research - Re-run of the value screen and 9 focus stocks
We have completed another periodic refresh of our value style screen, first established in our note of 26 May 2015. As usual the screen selected the 25 stocks exhibiting the most extreme value characteristics from our universe, and we have chosen 9 stocks to focus on. Since inception last year the screen has marginally outperformed the main small-cap index by 1pp and underperformed the micro-cap index by about 3pp. The EU referendum result arose in the latest period and resulted in significant short-term underperformance, which has not been recovered. The new basket was struck before the US election result.
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10 Nov 16
Re-run of the value screen and 10 focus stocks
We have completed another periodic refresh of our value screen, first established in our inaugural quant/screening note of 26 May 2015. As usual the screen selected the 25 stocks exhibiting the most extreme value characteristics (based on 2016 consensus P/E and latest price to tangible book ratio) from our universe, and we have chosen 10 stocks to focus on. Since inception last year the screen has outperformed the main small-cap and micro-cap indices (by about 8pp and 3pp respectively) and has proved to be pleasingly defensive.
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09 Jun 16
Value screen refresh with new focus stocks
We have re-run our value basket, first established in our inaugural quant/screening research note of 26 May last year. As previously the screen produces a basket of 25 value stocks, and we have selected 10 stocks we know well to focus on. To date the value basket has performed exactly in line with the microcap index and outperformed the smallcap index by about 9pp. Our original 10 focus stocks outperformed the basket by 2.2pp. We will continue to monitor performance of the basket, and refresh it again in 3-4 months’ time.
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15 Jan 16
Dialight (DIA LN) Trading update – underlying in line | Entertainment One Ltd (ETO LN) Canadian Pensions joins the board | Small-cap quantitative research Value screen refresh with new focus stocks | T. Clarke (CTO LN) Encouraging FY update, cash ahead of expectations
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15 Jan 16