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Henry Boot all set to march

VALUE STOCK OF THE YEAR: Henry Boot's main attraction is its 9,000-acre land bank
January 4, 2013

Sheffield-based Henry Boot (BHY) may be a slow burner, but it has a lot of value locked away in its land bank. The group’s core business operates as Hallam Land Management, whose aim is to buy land, push it through the planning process and sell it, usually to housebuilders who are keen to buy building land that’s ‘over ready’.

IC TIP: Buy at 136p
Tip style
Value
Risk rating
Low
Timescale
Long Term
Bull points
  • Significant land bank
  • Success in gaining planning consents
  • Construction holding up well
  • Diverse revenue stream
Bear points
  • Land sales remain subdued
  • Housing market depressed

The advantages for housebuilders are compelling. True, consented land is more expensive than land without planning permission, but it does away with the need to employ the staff necessary to drag land through the planning process. And the cost of this is considerable. Analysts at broker Investec Securities reckon that over the past two to three years the cost of making a planning application alone has roughly doubled to around £500,000 for a mid-sized site of 500 to 1,000 homes. Buying consented land also does away with timing issues, because planning permission can take years to achieve.

 

 

So, Hallam has been busy buying land. By the middle of November its land bank had grown to 9,069 acres. No value has been put on this, but a few months earlier Boot’s landbank was 8,761 acres and in the books at £68.1m. And within the current land bank over 20 per cent has planning consent.

Hallam now looks well-placed to turn these assets into cash at a considerable premium to their book value. True, land sales have been pretty subdued this year, but management has built a significant pipeline of sites with planning consent that are about to be marketed. Furthermore, some of these are already subject to agreed terms, which means that Hallam has some buyers already lined up. And while the housing market is pretty depressed, any improvement would help to boost demand for consented land significantly.

HENRY BOOT (BHY)
ORD PRICE:136pMARKET VALUE:£ 178m
TOUCH:133-137p12M HIGH:145pLOW: 108p
DIVIDEND YIELD:3.7%PE RATIO:16
NET ASSET VALUE:130pNET DEBT:12%

Year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
2009117-11.9-5.702.50
201013218.99.103.50
201111516.16.904.25
2012*11912.85.904.60
2013*13515.88.405.00
% change+13+23+42+9

NMS:2,000

Matched Bargain Trading

BETA:0.5

* Investec Securities forecasts

Another attractions of Henry Boot is its diverse revenue stream. On the property development side, the group has a 200-acre business park it is developing with Derbyshire County Council; of this, 100,000 sq ft has been pre-let. Elsewhere, contracts have been exchanged for Tesco to develop a 31,000 sq ft store in Doncaster. Other projects include a joint venture with Calderdale & Huddersfield NHS Foundation to convert a 56,000 sq ft listed mill. This has been pre-let to the trust on a 25-year term. And, at the half-year, investment properties were valued at £145m (6 per cent up on the year).

Construction is a sector that makes investors wary, but Henry Boot's construction division has been operating above expectations – the division remains on target to secure 60 per cent of its targeted revenue for 2013 by the end of 2012. And this is despite adopting a cautious approach to taking on new work, preferring to maintain profit margins at the expense of volume. Recurring revenue has played a part in maintaining income, with several long-term framework agreements already in place to provide social housing, notably in Scunthorpe, Manchester and Doncaster.

Other opportunities include work for the prison service, the courts and national forensic services. And, with the government announcing a resumption of private-finance initiative schemes Boot hopes to win new work. It already has a 61 per cent stake in a contract to maintain the A69 between Newcastle and Carlisle, and work is starting to flow from its inclusion as a supply chain partner on a 25-year scheme to maintain roads around Sheffield.

Henry Boot also runs a plant hire business, Banner Plant. Predictably, a slow down in construction work has dented demand for hire equipment but, after a slow start to the year, there are some early signs of demand picking up, although management is keeping a tight hold on costs until real signs of recovery show through.

Finances are in decent shape, too. Last year's cash pile was turned by the half-year into a net debt of £22m, but this resulted from extra purchases of land.