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Henry Boot-iful

Bringing land through the planning process for housebuilders is just one of the three profitable arms that Henry Boot operates
June 23, 2016

While shares in Henry Boot (BHY), a company that specialises in bringing land through the planning process and selling it on to hungry builders, have been battered about by referendum jitters, we think the stock is a winner which ever way the vote goes. Indeed, even in the supposedly uncertain pre-referendum conditions, the company has been selling more land than expected at better-than-expected prices, fuelling earnings forecast upgrades. We would not expect a Brexit vote to derail this and a Remain vote may even improve already buoyant market conditions.

IC TIP: Buy at 209p
Tip style
Growth
Risk rating
Low
Timescale
Long Term
Bull points
  • Strong land sales
  • Record pipeline of land schemes
  • Shares modestly rated
  • Low gearing
Bear points
  • High plant hire renewal costs
  • Planning constraints remain

Demand for Boot's 'oven-ready' land is pretty broadly based, and includes space for warehouses, offices and leisure as well as homes. And while the revenue stream can be a little lumpy, depending on when sales are completed, the underlying picture suggests that conditions in its end markets are strong.

 

 

Since January, there have been four land sales equivalent to over 450 units, and contracts have been unconditionally exchanged on a further two sites, with completion expected later this year. On top of that, there are detailed sale discussions taking place for a further 10 schemes, a majority of which are expected to complete before the end of the year.

And this is just the start because Henry Boot now has 52 sites for sale, equivalent to more than 15,000 units and an additional 29 sites worth 13,000 units either at appeal or as yet with undetermined planning applications, partly as a result of the overstretched planning system. The company also specialises in planning promotion agreements whereby it promotes a landowner's property for development and receives a fee or a proportion of the net sale proceeds. The current promotion portfolio contains over 150 sites covering 11,200 acres, and the board has approved the acquisition of a further 30 new sites in excess of 2,000 acres to replenish the portfolio.

HENRY BOOT (BHY)
ORD PRICE:209pMARKET VALUE:£ 276m
TOUCH:209-210p12-MONTH HIGH:245pLOW: 193p
FWD DIVIDEND YIELD:3.7%FWD PE RATIO:10
NET ASSET VALUE:166pNET DEBT:18%

Year to 31 DecTurnover (£m)Pre-tax profit (£m)*Earnings per share (p)*Dividend per share (p)
201315418.48.55.1
201414728.315.95.6
201517632.417.36.1
2016*19238.021.47.0
2017*20438.622.07.7
% change+6+2+3+11

Normal market size: 1,500

Matched bargain trading

Beta: 0.13

*Numis forecasts, adjusted PTP and EPS figures

Boot also has a healthy construction division, which services a number of long-term framework and partnership arrangements with the likes of St Leger Homes and North Lincolnshire Homes; social housing demand is expected to remain strong for the foreseeable future. It also carries out refurbishment schemes and, having completed a number of projects on prisons and court rooms, two further developments are in progress for care housing with Leeds City Council and medical facilities for Sheffield NHS Trust. On the property investment side, projects include a £300m development of an exhibition arena and conference centre, together with a hotel complex in Aberdeen.

There is also a plant hire business, where pre-tax profits last year rose by 15 per cent to £1.5m. Boot continues to see strong demand here and plans to maintain equipment renewal expenditure at £4.3m this year. One challenge the business faces is recovering the increased capital costs of new plant associated with clean air compliance.