AGM comments point to a robust London housing market with broadly based demand continuing and we detect no change in tone regarding market temperature. We are reminded that profitability will again be weighted towards H2 and we assume that this reflects the phasing of visible projects that are currently underway.  

Having attained record profitability of £46m PBT in FY18, management has set the target of delivering over £50m PBT in FY19 and consistent returns to shareholders. Two well-developed themes are the shortage of new housing in the London heartland, and strong and rising institutional investor interest in the build-to-rent (BTR) subsector. Together, these aspects are underpinning Telford’s rebalancing towards larger but lower-risk (through forward sale) projects, which also facilitate increased business scale. The latest example cited is Equipment Works (a mixeduse development located in Walthamstow, E17) where negotiations are underway for the sale of all 257 of the site’s proposed BTR homes to a single investor. Looking ahead, Telford is also actively exploring potential longer-term BTR investor partnership arrangements and further updates here in due course may provide additional insight into future strategic progress.

In context, Telford Homes’ share price has recovered from a post-EU referendum low of c 283p in July 2016. Indeed, it also performed well in the second quarter of calendar 2018 (reaching a c 471p high in May), but has since retraced and currently sits c 5% below levels at the start of the year. Having delivered record – and above consensus – FY18 results with a confirmed management expectation of further progress in FY19, the company’s P/E has compressed to single-digit multiples with a prospective 4.7% dividend yield. To us, this looks like investor sentiment has moved away from perceived cyclical plays, but the dynamics of the London market are somewhat different and offer greater resilience in our view.