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.
FY19 results included record revenue generation and reported PBT met management’s February guidance. Although this was below expectations earlier in the year, the company made broad progress across a number of project and tenure types. At the margin, subdued London residential market conditions constrained open-market sales. This, the previously referred to later completion of City North, N4, and the transition to an increasing proportion of BTR developments create a dip in expected earnings in FY20 before they should start to rebuild in FY21e. This profile is in line with our previously published estimates.
In total, 31% of FY19 revenues were generated from BTR developments, an increase in value of 60% y-o-y to £109m, Moreover, BTR-led projects account for c 70% of the current pipeline’s £1.59bn gross development value. The direction of travel is clear; beyond known existing projects, the announced strategic partnerships with M&G and Invesco indicate that further BTR sector developments are firmly on the agenda.
The company’s share price has recently regained the level seen when we initiated coverage at the end of February and has underperformed the FTSE All Share Index by c 3% over this period. On our FY21 estimates, Telford’s P/E is 9.7x with a prospective 5.7% dividend yield on offer (as well as 2.9% with the FY19 final). On our updated DCF analysis, the current share price is equivalent to EBIT generation around expected FY21 levels into perpetuity. Raising this to our projected FY22 EBIT generates a 418p per-share valuation for the company.