View the latest research on other companies in the sector.
Due to a change in Analyst role, Cenkos Securities plc has suspended coverage of the following stocks (see table 1). Our previous recommendation and forecasts can no longer be relied upon.
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Dwight Barkley PhD is a Professor of Mathematics at the University of Warwick. He studies waves in excitable media such as the Belousov-Zhabotinsky reaction, heart tissue and neurons. In 1997, Dr Barkley and Dr Laurette Tuckerman, a Paris-based mathematical physicist, developed ‘bifurcation analysis for time steppers’, which is a technique for modifying computer codes to perform bifurcation analysis. More lyrical, perhaps, Dwight is also known for formulating an equation to estimate how long it will be until a child in a car asks the question “are we there yet?” And, it is shown on the image on page 3 of this report. Herein, there are three factors which decide the timing of this wearisome question i.e. one plus the number of activities, divided by the number of children in the car squared. That figure is then added to the time it took the family to get into the car and set off on its journey. Crucial in putting off the first query as to the proximity of the destination are onboard activities for children i.e. no activities equals a question before leaving the driveway. Dr Barkley says: “Mathematics can help answer many of life’s questions”. If only the Brexit journey were that simple. It is not. We are all children now stuck in the back seat; and, maybe, we are still on the driveway with a dearth of on-board activities. Yes, three years on Brexit-resolution-fatigue is making itself felt across the board, including the UK Housebuilding Sector, where the fall in value in 2Q’19 was 7%. Berkeley said something similarin its final results, on 20 June, when it lamented an uncertain operating environment and “a lack of visibility in the political outlook”; and its PBT is expected to fall by a further third this fiscal year. The daily Sector value chart is also lurching from top-left to bottom-right (as is the British Pound versus the Euro). Yes, there were two palpable positives in 2Q from the NHBC and UK Finance about building activity and mortgages; plus, on the third day of 3Q, CBRE’s bid for Telford Homes. Nonetheless, prospective earnings growth for the Sector is now flat in both 2019 and 2020. This is about the journey.
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For the purposes of the Takeover Code, Edison Investment Research is deemed to be connected with BCA Marketplace. Under Rule 20.1 Edison must not include any profit forecast, quantified financial benefits statement, asset valuation or estimate of other figures key to the offer, except to the extent that such forecasts, statements, valuations or estimates have been published prior to the offer period (as defined in the Takeover Code) by an offeror or the offeree company (as appropriate) in accordance with the requirements of the Code. Consequently we have removed our estimates until the Offer Period ends.
Telford Homes
Warren Buffett once said that as an investor, it is wise to be ‘fearful when others are greedy and greedy when others are fearful’. Fear is not in short supply right now.
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FY19 results were in line with February guidance and the year ended with lower net debt than we had anticipated. The migration to a dominant Build to Rent (BTR)-led pipeline is well underway. The first developments of this type were handed over in the year and, together with the announced strategic partnerships, other live projects indicate good momentum in this sub-sector. As before, FY20 will reflect other project and open-market effects before earnings start to rebuild from FY21, consistent with our estimates. Telford’s valuation looks conservative if the company is able to sustain or exceed our projected FY22 EBIT over the long term.
Since announcing a strategic re-focusing of the group more towards the low risk, low capital intensity Build-to-Rent (BTR) market at the end of February, trading has been stable against our revised expectations. PBT for FY2019A came in at the expected £40m and we see no reason to change any forecasts: estimates and key metrics are summarised below. Trading conditions in the open market in London remain tough but units are still selling at all price points and there is little today left unsold in terms of finished stock. The BTR segment remains strong and is still attracting high levels of interest from a diverse range of investors from the UK and overseas. Re-focusing of the group towards this more attractive end-market should deliver long-term benefits of superior growth, lower risk, lower capital intensity and lower gearing. The shares are trading at more than 12% below NAV which we believe fails to reflect the positive changes now well in hand and implies an und
Y2K is a numeronym and was the common abbreviation for the year 2000 software problem; and, for the benefit of millennial readers, the abbreviation combines the letter ‘Y’ for year and ‘K’ for the SI unit prefix kilo, meaning 1000. Hence, 2K signifies 2000.
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Telford Homes represents a pure play on London’s clear requirement for the delivery of more good-quality, new build homes. Management is continuing to orient development activities towards the more robust build to rent (BTR) subsector, although there will be a near-term dip in earnings as the pipeline transitions, factoring in isolated other project delays and current market conditions also. Regaining and sustaining historic profit levels would warrant a share price significantly ahead of the present valuation.
United Oil & Gas (UOG.L) an oil and gas exploration and development company brought to the Official List (Standard Segment) in July 2017 by way of a reverse takeover of Senterra Energy plc. No capital to be raised, expected market cap of £17m and expected 28 Feb Techniplas –global producer and support services company providing highly engineered and technically complex components, making the supply chain to original equipment manufacturers more efficient. FYDec17 rev $515m. Polemos, to be renamed Digitalbox plc, has agreed to acquire Digitalbox Publishing Holdings Limited for c.£10m through a share for share exchange. The acquisition constitutes a RTO. Polemos has also agreed to acquire the entire issued share capital of Mashed Productions Limited, a digital media business which owns the online satirical news website "The Daily Mash", for a maximum total consideration of up to £1.2m. Market cap on admission £12.4m, expected 28 February
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United Oil & Gas (UOG.L) an oil and gas exploration and development company brought to the Official List (Standard Segment) in July 2017 by way of a reverse takeover of Senterra Energy plc. No capital to be raised, expected market cap of £17m and expected 28 Feb Techniplas –global producer and support services company providing highly engineered and technically complex components, making the supply chain to original equipment manufacturers more efficient. FYDec17 rev $515m.
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‘From the deserts of East Ham to the gardens of Cottenham’, the UK Housebuilding Sector was whacked to the tune of 27% in 2018; and not one share price (out of 18) rose on the London Stock Exchange.
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A 10 October update put down some clear markers for open-market sales to attain £50m+ group PBT in FY19 and for build-to-rent (BTR) sector expectations during H219. Some market risk remains evident at higher open-market price points and, with increasingly risk-averse UK equity market sentiment, Telford’s trading update was not well received. However, short-term market conditions are not distracting management from the development of an attractive pipeline of future project opportunities.
“It’s like the cow that every single day during 10 years sees the train crossing in front of it at the same time. And if you ask the cow what time is the train going to come, it’s not going to have the right answer. In football it’s the same”.
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Telford Homes’ latest update is consistent with management comments accompanying FY18 results and the company is on track to deliver further progress in FY19. The share price has not kept step with business performance, perhaps influenced by wider cyclical sentiment. Project portfolio newsflow is likely to remain positive, and this should serve to re-connect internal progress and investor returns in our view.
This VAR was conceived in 2010 by the Royal Netherlands Football Association (KNVB) but it was seven years later, in April 2017, that it had its professional club competition debut in the A-League in Australia in a match between Melbourne and Adelaide.
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One of the benefits of a public listing is that it provides a vital source of capital for businesses like Telford Homes. Indeed, since Jan’12 it has raised £70m in 2 tranches (£50m Oct’15 & £20m Jun’13) to develop thousands of desperately needed, high quality, affordable properties within inner London. In return, shareholders have seen PBT climb from £3.0m in FY12 to £46.0m today (see below), and been rewarded with a 475% appreciation in the stock from 79p to 460p. Which, when added to 75p of dividends, equates to an average annualised gain of 34% pa.
We have completed another refresh of our value style screen, first established as of 12 May 2015. As usual the screen selected the 25 stocks exhibiting the most extreme value characteristics from our universe, and we have chosen 10 stocks to focus on. Since the last refresh, two days before the last general election, which resulted in a hung parliament, the screen has performed a little better than the small-cap index with our focus stocks outperforming by about 500bps. The weighting to UK consumer stocks noted last time detracted from performance, which came as little surprise given our cautious stance, much discussed in our other strategy work this year. One might have expected more consumer exposure in the refreshed screen given this year’s severe underperformance, but it appears forecasts have been similarly downgraded, keeping much of the sector outside our value criteria
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Need a reality-check on the daily hype surrounding the Capital’s housing market? Then look no further than Telford Homes, a specialist developer of ‘affordable’ studio, 1-3 bed apartments and ‘Build-to-Rent’ (BTR) schemes in inner London. Today the firm released another positive trading update, saying that results for the y/e March 2018, would not only be at “record” levels, but also adjusted PBT would come in >30% above LY (£34.1m) and “slightly ahead of expectations”. Accordingly we have nudged up our FY18 PBT forecast from £44.0m to £44.6m on LFL revenues 8% higher to £315m (vs £292m LY).
This ominous-sounding term originated from the work of famed Swedish meteorologist, Tor Bergeron (1897-1977), but it only entered popular vernacular this year – and there have been ample opportunities in 2018 to use it.
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e il futuro
The markets have an uncanny knack of making fools out of us all. Back in 2012, I stupidly sold shares in Telford Homes - a specialist builder of affordable homes in ‘nonprime’ London boroughs. Happy enough at the time to pocket a >100% gain, only then to watch the price triple over the next 3 years!
Telford Homes’ trading update is a timely reminder that house building can’t always fall into neat six months tranches. Is also serves to remind us that demand for affordable housing in the London market remains strong and, combined with build to rent, provides excellent visibility through its strong forward order book, supported by a robust balance sheet. We expect continued growth over the next three years.
Totally (TLY) - Sch 1 for £11m RTO of Vocare, a provider of integrated urgent care services to the NHS throughout the UK. £76.8 million rev in the year ended 31 March 2017. Totally to address Care Quality Commission concerns. Due 24 Oct. Central Asia Metals (CAML) -RTO of Lynx Resources. Anticipated market capitalisation at Admission: £404.8m. Raising £113m at 230p. Acquiring the SASA zinc-lead mine in Macedonia from Solway Industries. Due 15 Dec. Springfield Properties—Scottish housebuilder. “Our turnover exceeded £100 million for the first time this year and now we employ around 500 people. This IPO is the next step in our growth.” Expected Mid October. Offer TBA. OnTheMarket—Intention to float on AIM to raise c.£50m which will be used to fund the growth of the OnTheMarket.com portal, already the third biggest UK residential property portal provider. Expected valuation £200m to £250m. Orogen plc, to be renamed Sosandar plc on Admission. Sosander is an online womenswear brand specifically targeted at a generation of women who have graduated from younger online and high street brands, and are looking for affordable clothing with a premium, trend-led aesthetic. Offer to raise £5.3m with market cap of £16.1m, expected 2 November 2017 OG Graphite, brownfield development-stage graphite company focused on the reactivation of its wholly-owned Kearney natural flake graphite mine and mill located 280 km north of Toronto, Canada. Offer TBA, expected late october .
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‘The $64,000 Question’
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Melrose Industries could be set to be the second former AIM company to make it into the FTSE 100 index after it was placed on the reserve list in the recently announced index changes. Baltimore Technologies had a short stint in the index at the turn of the century.
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Telford Homes has published another positive set of full year results with record revenues and profits. The company has a large development pipeline, it enjoys excellent visibility through its forward order book and the balance sheet is robust. We expect continued growth over the next three years.
Telford Homes has published a positive full year trading update (FY to 31 March 2017). The company continues to trade well and will report record revenues and profits when it announces results in late May, with PBT ahead of market expectations.
Initially the market is likely to be pleased with the White Paper (WP) in so far as the sector is concerned; there is no revolution taking place which is radically moving from demand-led to supply-led policy (for owner-occupation) nor policies which appear to be aimed directly at industry competitiveness. However, I do not see that being a sustained view and I remain of the opinion that the current (PD) housing cycle will start to roll over in 2019 driven either by rising interest rates or further political shift, hence the market may start to reflect that in 2018. For now I remain neutral/mildly positive on the Housebuilders but would be contemplating pre-cautionary reductions in sector exposure beyond this year or into meaningful bouts of strength.
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H1 results were in line with expectations with PBT of £9.0m, EPS of 9.9p and DPS of 7.2p. The NAV / share is 253p. We expect the company to have a strong H2 based on its forward sales position and the timing of developments coming through. Telford has a strong balance sheet, a large development pipeline and impressive forward sales position, as well as good levels of demand for its product and geography from a diverse group of buyers. No change to forecasts at this stage.
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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Telford Homes is in as strong a position as it has ever been in the 15 years since flotation. The company has a strong balance sheet, with an expanded equity base and significant headroom on its banking facilities, a large development pipeline and impressive forward sales position, and good levels of demand for its product and geography from a diverse group of buyers.
DIAMONDCORP PLC (DCP LN) | IMPAX ASSET MANAGEMENT GROUP PLC (IPX LN) | PETARDS GROUP (PEG LN) | QUADRISE FUELS INTERNATIONAL (QFI LN) | STEPPE CEMENT (STCM LN) | TELFORD HOMES (TEF LN) | TLOU ENERGY (TOU AU) | WALKER GREENBANK (WGB LN)
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The pilot episode of the much-hyped new TV series ‘Billions’ raked up almost three million viewers on debut in January of this year, which was a new record for Showtime. It is a sort of ‘Wall Street’ for a post Global Financial Crisis (GFC) audience. Damian Lewis heads the cast together with Paul Giamatti - and, the often parsimonious, IMDb has awarded the programme a premium 8.4 score. Lewis’s character Bobby Axelrod is an ambitious hedge fund manager and the sole survivor of the part-eponymous, Axe Capital, during the 9/11 attacks. Bobby is clever, charismatic and charitable (but not whiter than white). He is also very rich, lives in a nice house and knows what ‘billions’ is/are - and has a few himself; albeit these billions tend to slip in and out of his grasp, as is their wont. The UK Housebuilding Sector is also ambitious and survived the collapse of Lehman Brothers and the ensuing Global Financial Crisis. Similarly, it is smarter and wealthier than it has ever been; and, yes, charitable but not atramentous. It is also in award- winning form, which is a good job as it acts out another palpable crisis - the Brexit vote - and a £9 billion loss of value in six trading days. But do not despair.
Housing Market
We attended a site visit yesterday to several of Telford Homes’ sites at various stages of development. The trip provided good examples of regeneration in non-prime areas of London where Telford builds high quality homes at affordable prices. All sites that have launched are selling well, with a forward sales position of £700m as at the interims. Whilst there is lots of press commentary around a cooling London market, the differing supply and demand dynamics in the company’s areas of development continue to support its growth trajectory. With a significant institutional PRS deal announced on 15th February (Caledonian Road) and another deal in the pipeline, Telford expects Institutional PRS to form a significant part of its overall portfolio in the medium term. We continue to be positive on the prospects for PRS and believe this provides an opportunity to add considerable scale to the Group. Overall, the site visit reinforced our confidence in the Telford Homes model, the Group’s medium term prospects and the London mid-market.
The Fantastic Four is Marvel’s original and longest running superhero team who, through a cosmic incident, develop super powers; and then use them for good. Reed Richards (Q1) is able to stretch like rubber, while Johnny Storm (Q2) can produce fire at supernova temperatures and is able to fly. Meantime, Sue Storm (Q3 and sister of Johnny) can turn invisible and create force fields, especially when angered; and, finally, Ben Grimm (Q4 or ‘The Thing’) becomes a large, rock-like creature with immense strength. In 2015, the UK Housebuilding Sector embraced the legend and its own extraordinary powers - and was able to fight off the common arch enemy Dr Doom.
Avon Rubber (AVON LN) Strong end to the year to drive forecast upgrade | Brewin Dolphin Holdings (BRW LN) Weakness presents buying opportunity | Gooch & Housego (GHH LN) FY15 trading in line with expectations | Greggs (GRG LN) Another solid update supports upgrades | Halma (HLMA LN) Complementary fire acquisition | Liontrust Asset Management (LIO LN) Impressive inflows in weak markets | St Ives (SIV LN) Prelims slightly ahead, dividend +9% | Telford Homes (TEF LN) Well positioned in the London mid-market
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We wrote after our lunch in February with Telford Homes and commented positively again in our pre-Election housing note “cycle not yet over, opportunities remain”. At that stage the group had just increased its banking facilities by 50% - a strong vote of confidence by the syndicate in both the company and the London mid-market for homes. Since then we have had the expected solid prelims, an upbeat AGM statement and last month the company invested £23m in acquiring four significant sites via the cash purchase of the UHD regeneration business. We continue to believe the company is very well-positioned for the medium term and see recent general concerns as overdone regarding Buy to Let and a cooling London market at the premium end. We consider Telford a core play on London ahead of the trading update in mid-October and remain positive on the PRS sector, where we think the group could in due course look to target institutional as well as private investors.
