Henry Boot priced at trough valuation

Sheffield-based Henry Boot (BOOT: 230p), one of the leading land development, property investment, development and construction companies in the UK, flagged up last year’s strong operational performance in a pre-close trading update that I covered last month in my 2022 Bargain Shares Portfolio Review.

The group’s management delivered the best results in the group’s 137-year history, driven primarily by residential land sales (3,869 plots) at Hallam Land Management (flat operating profit of £17.3mn), a mix of land sales and development profits at the property investment and development division, and house sales at Stonebridge Homes (combined operating profit of £25.7mn, up from £18.3mn in 2021).

Henry Boot sold £279m of land, buildings and houses during the year, making the most of strong markets in the first half of 2022 and taking a selective approach to acquisitions, which included growing land holdings. Around 10 per cent of the 95,704-plot land bank has planning permission, and the group has already exchanged contracts on 992 land promotion plots and has forward sold 140 of Stonebridge’s 250 target completions for the current financial year.

Clearly, the property market is in a different place than it was 12 months ago, with activity levels across both commercial and residential markets now more subdued. That said, the forward sales should insulate the group to a degree, as should the intransigence in the planning system that is making housebuilders concerned about their land pipelines. These twin factors largely explain why analysts at Panmure Gordon expect Hallam Land to deliver even higher operating profit of £18.4mn this year on sales of 9,231 plots.

Weaker performance likely from other businesses

However, the growth at Hallam Land will not fully mitigate a weaker performance from the property investment and development business. Panmure expects the division to report 20 per cent lower operating profit of £20.6mn in 2023, the shortfall arising from a decline in the contribution from joint ventures. The construction division is also expected to see a fall in 2023 operating profit of around 9 per cent to £11mn, hence why Panmure now predict group pre-tax profit will decline from £45.6mn to £38.5mn on 3 per cent higher revenue of £350mn in 2023. On this basis, expect earnings per share to fall by a quarter to 18.3p, although analysts are still pencilling in another hike in the dividend to 7.2p.

This implies the shares are priced on a forward price/earnings ratio of 12.6, offer a prospective dividend yield of 3.1 per cent and are trading 22 per cent below book value – modest ratings that suggest that long-term holders should be rewarded in time. Moreover, with interest rates close to the so-called ‘pivot’, cost pressures easing as inflation starts to abate, and the UK likely to escape recession, both the economic and property market slowdown could be more benign than previously forecast.

So, although the holding is 21 per cent under water in my market-beating 2022 Bargain Share Portfolio, I would hold onto your shares as this looks like a trough valuation to me. Hold.

■ Simon Thompson's latest book Successful Stock Picking Strategies and his previous book Stock Picking for Profit can be purchased online at www.ypdbooks.com, or by telephoning YPDBooks on 01904 431 213 to place an order. The books are being sold through no other source and are priced at £16.95 each plus postage and packaging of £3.95 [UK].

Promotion: Subject to availability, the books can be purchased for the promotional price of £25 plus £5.75 postage and packaging.