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.
Telford has a portfolio of current on-site development projects and ten are scheduled for construction completion in the next 18 months or so. Of these, three are to be substantially complete during this financial year adding to available stock and driving the timing of owner-occupier sale commitments. Telford management expects H1 PBT to be ahead y-o-y. It also stated that c 90 open-market sales are required (and 25 are in the slower-moving £600,000+ bracket) in H2 to deliver fullyear PBT above £50m. It is reasonable to expect this to be based on other assumptions (eg average selling price achieved and progress with BTR sites), but they were not specified.
Slower demand at higher price points in London is not news and momentum in Telford’s typical price points (below £600,000) is being sustained with increasing use of the Help to Buy scheme. We expect Telford to continue to pursue new development opportunities and partnering arrangements in the BTR sector, while retaining focus on the undersupplied London residential market. Two early-stage examples show the scale of ambition – Parkside with Greystar (almost 900 BTR homes, planning approved) and a mixed scheme in East London (700 homes, seeking planning consent) – and also indicate a healthy project pipeline. Moreover, Telford expects to select a long-term BTR partner by the end of 2018, setting this in a contractual agreement by the end of FY19.
Having largely traded in the 400–425p range over the past three months, Telford’s share price has declined by c 15% since its trading update in a generally weak UK equity market. Consensus numbers have eased back in recent weeks; the current year P/E multiple is now just 6.2x, reflecting market scepticism regarding the attainment of these forecasts, in our view. Telford has strong positions in its chosen London market segments, which should be relatively resilient, but equity investors appear to have taken a bearish view on the London property market as a whole.