Galliford Try issues solid year-end update

Housebuilding, regeneration and construction group Galliford Try said its Linden Homes business should report “strong” overall performance and further significant improvement in margin in the year to 30 June, representing “very good progress” against its strategic objectives.

The FTSE 250 housebuilding and construction group said Linden had 3,442 unit completions, including units in joint ventures up from 3,296 units in the prior year.

Its sales rate for the year was 0.59 units per site per week from 85 average outlets, compared to 0.62 and 77 respectively.

The division’s year-end sales carried forward position was £366m, representing 2,326 units, compared to £373m and 2,229 units in the prior year.

Average private sales price rose 4% to £367,000.

Linden’s land bank stood at 11,400 plots, up from 10,650, with all plots secured for the new financial year and 81% of plots secured for the 2020 financial year.

In its partnerships and regeneration division, Galliford Try said its “impressive” performance had continued, with “significant growth” in both revenue and profit, against a backdrop of increasing demand and opportunities.

Its contracting order book rose to £1.2bn from £1.05bn, with mixed tenure sales carried forward of £160m, more than doubling from £77m.

The unit’s land bank stood at 3,300, up 22% from 2,700.

On the construction front, Galliford Try reported improved underlying performance, with its net debt position expected to be less than £30m, compared to net cash of £137m at the end of 2017.

It said the deterioration since the prior year primarily reflected the burden of the AWPR joint venture.

The company reported a £3.3bn risk-managed, “high quality” order book, down slightly from £3.5bn, with 86% of that in the public and regulated sectors.

A total of 87% of revenue for the new financial year for the construction division was already secured, up from 84% at the same time last year.

“Galliford Try has achieved a strong underlying performance in the financial year and continues to make good progress against its growth plans to 2021 across all three businesses,” said chief executive Peter Truscott.

“Linden Homes has delivered sales growth in line with expectations and at a further significantly improved operating margin, and enters the new financial year with sales exchanged and reserved of £366m.”

Truscott noted that partnerships and regeneration had continued to make “excellent” progress against the stretching growth and margin targets set for the business, significantly increasing revenue and profit.

“The business has a strong order book, benefiting from growing demand and opportunities in both contracting and mixed tenure.

“Construction's underlying performance is good with current and new projects expected to deliver improved margins, operating on multiple secured frameworks and in our chosen sectors.”

He said the troublesome Aberdeen Western Peripheral Route joint venture continued to make progress on site, with sections of the road already opened to traffic as it is expected to be "substantially complete" by the summer, versus the "practical completion" flagged in May.

“We continue to anticipate a further exceptional charge in the second half, in line with previous guidance - i.e. expected to be lower than the charge of £25m taken in the first half - and the final out-turn remains dependent upon the result of several significant claims.”

Truscott said the group expected to report “strong” pre-exceptional full year results, in line with previous guidance, and net cash at 30 June of £97m, with average net debt for the year below previous guidance at £227m, excluding the benefit of the rights issue receipt of £150m net.

“The outlook for the current financial year remains in line with management's expectations.”

Galliford Try said it expected to announce its results for the full year on 12 September.

Broker Peel Hunt said the partnerships arm was the ""star performer", Linden posted a "healthy improvement in underlying margins", construction was seeing "better trading conditions" but the Aberdeen news "remains mixed".

Analysts made no changes to forecasts for the current year but trimmed their top-end estimates by £10m to £190m for the new financial year and to £214m for 2020, "mainly to reflect the impact of the slower land buying caused by the road cash squeeze".

This results in a cut to EPS forecasts by circa 5% to around 139p for 2019 and 157p for 2020.

"We leave our TP at 1165p and retain our 'buy' recommendation with the shares trading on a P/NAV of 1.38x, a PE of 5.9x and a dividend yield of 8.6% for FY19."

Broker Liberum, which retained its 'buy' rating and 1116p target price, noted the shares look "very cheap" on a p/e ratio of 5.6 times and 1.3 times price to book (June 19E) especially versus a 24% return on equity.