Countryside income prospects improve

The partnership division, which specialises in urban regeneration of public sector land by partnering with local authorities and housing associations, accounts for an increased proportion of completions and earnings following last year’s acquisition of Midlands and South Yorkshire housebuilder Westleigh. Completions for the partnership division rose 61 per cent during the first half – or 12 per cent organically – and accounted for 80 per cent of the group total along with half of profits. That was driven by a rise in affordable homes and an agreement with Sigma Capital to build 5,000 private rented homes over three years.

Acting as master planner on public sector land, and getting paid as key development milestones are completed, means Countryside does not have to commit as much capital as would be needed on a traditional housebuilding site. It also potentially de-risks the construction process for local authorities, and Countryside's established track record helps convince its partners this will be the case. Undertaking more partnership work has started to boost the company’s return on capital employed, which rose to 32.9 per cent during the first half from 27.8 per cent in the prior year. Increased focus on this capital-light model has also enabled management to boost the dividend payout ratio to 40 per cent of adjusted earnings, up from 30 per cent.

Pressure on higher house price points has led to a slight reduction in average private sales prices for the housebuilding division, which reduced by £20,000 to £510,000 during the first half. Completing more housing in the English regions has led to a reduction in the average sale price for the partnership divisions, too. It also meant partnerships' adjusted operating margin reduced to 13.3 per cent during the first half, from 19 per cent. However, given London and the south-east have suffered greater weakening in house price growth, focusing on the Midlands and the north looks like a sensible growth strategy. Admittedly, given parts of the partnership division operate under profit share agreements, a fall in house prices could squeeze the amount its partnership division receives from home sales.