Harworth braced for economic storms

It is hard to think about the long term with so many dark economic clouds on the horizon. Rampant inflation, soaring energy prices and the threat of another recession are at the forefront of many minds as real and present dangers. Yet, Haworth Group (HWG) looks at things differently.

Speaking on the morning of the land and property regeneration business’ results for the six months to 30 June, chief executive Lydia Shillaw says the long-term nature of the business means that it is “assembling land today for sites that we might not be building on for another 10 years”. She adds that the company is addressing a “structural undersupply” in both housing and warehousing as opposed to a cyclical one.

Harworth’s portfolio can be broken down by value into thirds: one-third of its assets are residential land plots which it prepares and sells on to housebuilders, one-third is land being developed or ready to be developed for warehouse space and the final third is completed warehouse space. Those built warehouse assets are almost fully let and the company won’t build any warehouse over 100,000 square foot without a tenant already signed up. After all, it does not need to take the risk. If the storm comes, Harworth has a big enough land bank to wait it out. In the meantime, its pre-tax profits and revenues are ticking up.

It sounds ideal, but no business is entirely unexposed to the short-term pressures of the economy. Inflation is hitting construction costs hard while higher interest rates have put the brakes on many warehouse and home sales. Next year’s results might not be as stellar as this year’s, but Shillaw is right: it’s the long-term that counts. Buy.

Last IC View: Buy, 177p, 22 Mar 2022