This brownfield developer is one of the UK’s leading regenerators of land and property for development and investment, writes Mark Watson-Mitchell.
I really do like the property sector. Over time it continues to throw up value and capital growth. To make more of both, it is essential to work hard at your target. And that is just what the management of the Harworth Group (LON:HWG) does.
This fully listed, Main Market-quoted, company is a Rotherham-based major regenerator. Its operations span the North of England and the Midlands. And its medium-term focus is on ‘beds and sheds’.
Its value exercise is through the specialisation of regenerating former coalfield sites, old industrial land and other brownfield locations into new developments for housing or industrial or work units – hence the ‘beds and sheds’.
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Considering that the management of the company came from the old UK Coal property division, they should know a thing or two about how to deal with redundant coalfield sites. It is certainly that experience that sets Harworth apart from others in the ‘regeneration’ sector.
One of the strategy mantras from the company describes its business – ‘Transform’, ‘Regenerate’, and ‘Revitalise’. Harworth’s management declared strategy is to grow and improve the quality of its recurring income, with the aim of covering its overheads, interest, tax and dividends.
Today, the company is one of the UK’s leading regenerators of land and property for development and investment. It owns and manages over 21,500 acres of land across some 120 sites. It also boasts over 11,000 housing plots, with planning consents, and has over 10.7m sq. ft. of commercial space.
The company’s portfolio includes properties at various stages of their completion and covers residential, industrial, retail and mixed-use developments. In its retained income producing portfolio it also includes a number of low-carbon energy projects and chunks of agricultural land.
The company looks to maximise the value of its land by several processes including planning, applying value engineering, adding on or off-site infrastructure, proactive asset management, and strategic acquisitions, as well as the sale of plots to other developers and even commercial occupiers.
Its income generation focusses upon the retained selected land to generate both value and income growth. It even sells off recycled materials during site remediation.
In 2018 the company spent just under £60m on acquiring new sites, its busiest year to date. This calendar year has already seen a plethora of deals, possibly pointing to an even busier period.
Its portfolio, which has valuations twice yearly, was last valued at over £525m. With 321.5m shares in issue, the group is valued in the market at around £418m.
The largest shareholder in the group’s equity is John Whittaker, the Isle of Man based property developer, with 26%, whilst the second largest holder is the Pension Protection Fund, with 25%.
Another shareholder of note is the billionaire Spencer Nicholas Roditi, the hedge fund manager turned property developer who was formerly a trusted adviser to George Soros. Roditi, who owns 29% of the Workspace Group, also has 6.19% of the Harworth Group.
Professional holders include Invesco Asset Management (9.95%), GVQ Investments (1.80%), Polar Capital (1.59%), Artemis Investment (1.11%), AXA Investments (1.08%), Hargreaves Lansdown (0.92%), and Schroder Investments (0.83%).
The Company has a low gearing target of between 10-15% loan to value with net debt of circa £60m. It now enjoys a total of £100m Revolving Credit Facility from RBS and Santander. Another important target is to generate a total return to shareholders of over 10% per annum.
The year to end-December 2018 reported revenue of £78.06m upon which the company showed a pre-tax profit of £32.81m, worth 10.60p per share in earnings and more than amply covering a dividend of just 0.91p per share.
This year’s estimates are already suggesting £81.9m of sales revenue and £52m of pre-tax profits, pumping its earnings up to 14.7p and its dividend up to 0.97p per share.
At this early stage estimates for next year are cautious in only going for similar returns to this year. However, brokers Liberum see material upside in Harworth’s equity value as it progresses its large pipeline, and they rate the shares, now 130p, as a buy with a target price of 170p – and from what I can see about this company I would totally agree.