Scottish housebuilder, Springfield Properties has formed a partnership agreement with urban regeneration specialist Sigma Capital Group to deliver private rented homes in Scotland. This should establish a third strand to Springfield’s growth, alongside its private and affordable housing. Although potential development opportunities remain to be identified, we believe it could further accelerate Springfield’s already ambitious growth aspirations.
Under the agreement, Springfield and Sigma will collaborate to acquire and develop sites for the private rental sector (PRS). A number of existing Springfield sites, primarily its ‘Village’ developments, near Dundee, Perth, Livingstone and Stirling, have been identified as potential sites for PRS development. Subject to certain criteria, Sigma PRS Management (a wholly-owned subsidiary of and investment advisor to Sigma) will purchase part of these sites from Springfield and will award Springfield fixed-price ‘design and build’ construction contracts to deliver housing on the acquired land.
Following handover of the homes by Springfield, Sigma will oversee lettings and property management. In addition, both will seek to identify other sites for Sigma to acquire for the purpose of PRS housing development by Springfield. CEO Innes Smith said: “This agreement stands to accelerate our delivery of homes, particularly on Village developments and increase the number of homes available in the private rented sector”.
We believe this has the potential to accelerate volume growth and profitability in excess of our existing estimates. However, at this point, we believe we will need to see further details on the timing and size of potential deals, subject to planning. Due to the contracting type nature of the work, we envisage overall margin dilution on any additional revenue generated, but increased absolute profitability, lower risk and good visibility of cash flows.
The group is focused on midmarket housing for sale as well as a more pro-active approach to affordable. It was admitted to AIM in October 2017. It has adopted a more growthorientated strategy than most larger UK national peers, supported by its extensive landbank of and the acquisitions of Dawn Homes in 2018 and Walker Group in March 2019. A major ‘USP’ is its network of ‘Village’ communities. Valuation (FY 2020E): P/E, 7.0x; yield, 4.7%, PBV, 1.06x.