UK builders currently have voracious appetite for land, so there couldn't be a better time for land-development specialist Henry Boot (BHY) to have "an unprecedented number of land sites with planning permission and more large scale commercial development projects... than ever before." And while the shares' 42 per cent premium to net asset value (NAV) looks steep at first glance, this needs to be seen in the context of estimates of the gross development value of Boot's land of about £700m, according to broker WH Ireland.
- Strong demand for building land
- Construction book filled for the year
- Significant land bank
- Low level of debt
- Planning constraints remain a worry
- Modest dividend payment
Henry Boot's main operating division, Hallam Land, specialises in bringing potential sites through the planning process and selling them "oven ready" to hungry housebuilders and to commercial property developers. Sales in the first half of the year were virtually unchanged from a year earlier, although this was mainly as a result of many people, most notably planning departments, sitting on their hands in the run-up to the general election.
Since then, the wheels have started to turn more freely, although staffing and monetary constraints are like to continue slowing the planning process. Even so, having completed six land sales and exchanged on three others in the first half, negotiations are in hand for a further 11. To meet continued demand, the company has continued to add to its land bank, and at the June half year-end, it held an interest in 10,547 acres. Of these it owns 1,810 acres, with a further 2,763 under option. The balance comes under planning promotion agreements, whereby Henry Boot promotes the landowner's property for development and receives a fee or a proportion of the net sale proceeds.
| HENRY BOOT (BHY) | ||||
|---|---|---|---|---|
| ORD PRICE: | 225p | MARKET VALUE: | £297m | |
| TOUCH: | 225-230p | 12-MONTH HIGH: | 245p | LOW: 173p |
| FORWARD DIVIDEND YIELD: | 2.9% | FORWARD PE RATIO: | 12 | |
| NET ASSET VALUE: | 159p | NET DEBT: | 26% | |
| Year to 31 Dec | Turnover (£m) | Pre-tax profit (£m)* | Earnings per share (p)* | Dividend per share (p) |
|---|---|---|---|---|
| 2012 | 103 | 13.4 | 6.8 | 4.7 |
| 2013 | 154 | 18.4 | 8.5 | 5 |
| 2014 | 147 | 28.3 | 15.9 | 5.6 |
| 2015* | 154 | 30.0 | 17.2 | 6.1 |
| 2016* | 161 | 31.3 | 18.1 | 6.5 |
| % change | +5 | +4 | +5 | +8 |
Normal market size: 1,500 Matched bargain trading Beta: 0.1 *WH Ireland estimates, adjusted PTP and EPS figures | ||||
Henry Boot also has its own construction division, covering a range of activities including a six-year framework agreement with the Ministry of Justice as well contracts for social housing. Business is booming, and at the half year it had already achieved its budgeted order book for the full year. The group also retains a 61 per cent stake in a project to maintain the A69 trunk road; a contract that still has 11 years to run. There is also a plant hire operation - Banner Plant - where turnover rose 12 per cent in the first half, helped by stronger utilisation rates. Continued investment will see a fifth power tool centre opening this year.
On the financial front, net borrowings at the half year jumped from £36.4m to £55.4m, but this is being used to fund current developments through to completion, which makes good sense given the strength of the market. And debt is expected to decline as assets held for sale are disposed of. It's also worth noting that liabilities associated with the company's pension fund have also taken a positive turn, falling from £28.2m at the end of 2014 to £20.2m at the half year.
