Springfield Properties looks like an excellent well-backed stock for traders and long-term investors alike, writes Mark Watson-Mitchell.
The recent interim results to end November 2018 from Springfield Properties (LON:SPR), Scotland’s only quoted housebuilder, showed very clearly that the Scottish new home market is still expanding. Possibly at a better pace than down south.
The company, which is a leading housebuilder in Scotland delivering Private and Affordable housing, saw a very impressive 38% leap in revenue to £75.7m for the six months to end November 2018. With profit margins up from 15.4% to 17.2%, pre-tax profits almost doubled from interim £3.1m up to £6.1m for the first half of this year.
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The number of completions was 234 homes against 184 previously. Reflecting the sales-mix, the average selling price was just £7,000 lower at £227,000. Planning consents achieved during the period was 211, whilst the group’s land bank grew 23% to 10,805 plots – with a Gross Development Value up nearly 21% at £2.9bn.
Executive Chairman, Sandy Adam, stated that “Looking forward, we have entered the second half of the year with a strong order book of contracted revenues and a greater geographic reach across Scotland. With the sustained market drivers showing no sign of abating, Springfield is in a stronger position than ever to deliver many of the new private and affordable homes needed in Scotland.”
This current year ends on 31st May. The way I see it is that it will be stunner of a performance for this former market garden business that only started in the property business, using old garden sites, way back in 1996. It only floated on AIM in October 2017. And its progress to date has been more than impressive. Apart from two acquisitions – especially the one of Walker Holdings at the beginning of last month – its growth to date has been largely organic.
Walker is an unbelievably good fit. Geographically, for land bank acquisition, offering expert management, excellent revenue and profitability, with a big cross-selling opportunity the Walker Group offered it all – as well as a mass of cash to boot.
The Livingston-based housebuilder focussed on private housing in the central belt of Scotland, was acquired for a net consideration of up to £31m. Walker Group is a high-quality family housebuilder primarily targeting the two-to-five-bedroom private home market, on developments of generally 50 to 200 homes. Its sites are in desirable locations within the Edinburgh commuter belt, therefore expanding the Springfield’s land bank and sales presence in this popular, high-growth area. On acquisition, Walker Group’s land bank consisted of 1,358 plots (39% of which had planning) across five active and five future sites with a total GDV of £413m.
The acquisition supports and enhances Springfield’s existing forecasts and is expected to enhance earnings per share in the current financial year. It utilised and exceeded its budget for its current financial year for land purchases and the bulk addition of land – adding 10 sites in a single transaction – which significantly strengthens the visibility over projections for the next three years. The expanded land bank has secured activity for at least the next 18 years.
The net £31m purchase was £21m cash, with further cash payments of £4m and £2m, dependent upon certain planning consents secured – with £4m in deferred consideration over the next two years.
In the year to end September 2018 Walker sold 146 homes, it generated £42m of revenue and made a £10.4m pre-tax profit. It has a £413m GDV, equal to nine years of development at current rates. Springfield has 15 years of activity at current sales rates. Springfield also acquired £41.4m in cash in Walker, as part of the £72.4m gross consideration.
This whole deal has booted it up by a quantum leap and will generate bigger profits in the process. Following this earnings-enhancing deal the enlarged group is now operating on a total of 43 active sites.
For the current year to end May 2019 I expect the group to see revenues up 40% to £188m, whilst pre-tax profits leap just over 64% to some £16m, giving earnings per share a 24% boost from 10.7p to 13.3p. The dividend should increase from 3.7p to 4.4p per share – a tidy little addition to this company’s investment attraction.
For the 2020 year, sales of £215m are estimated by researchers Progressive Equity Research and then £239.5m in 2021, with pre-tax of £18.6m in 2020 and £21m in 2021. Earnings per share are estimated at 15.4p in 2020 and 17.4p in 2021.
When Springfield Properties came to the market in late 2017 its shares were placed at 106p each, they subsequently hit an all-time of 134p in mid-May last year, before falling back to a low 104p very early in January. The recent rise to 124p and fall back to 114p now gives ‘sassy’ buyers an excellent longer-term purchase opportunity whilst short-term players can enjoy a well-backed trading play.
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