Brownfield land specialist St Modwen has entered a joint venture with housebuilder Persimmon to develop 2,000 homes on 7 sites owned by St Modwen. The development covers 120 acres and will take up to 5 years to complete, with an end value of around £300m.
The groundbreaking deal is good news for both companies, but for St Modwen the deal is especially attractive because land being sold into the joint venture is expected to command book value or better, which underpins the value of the rest of St Modwen's land bank. Furthermore, by boosting cashflow St Modwen will gain additional headroom on its covenants.
This is a sensible deal that benefits both parties. Persimmon runs a tight ship and has achieved a rise in margins, while enjoying strong cash generation and virtually no debt, and at 379p the shares remain a buy. Shares in St Modwen also retain their attraction at 178p and remain a long-term buy.