Savills rides the UK residential surge

Interim figures from Savills (SVS) elicited a positive market reaction, with the shares up 7.8 per cent on results day. Year-on-year comparisons aren’t as instructive as usual due to weak comparators in H1 2020. But the high-end estate agency did highlight “the abnormally high level of post lockdown activity which commenced in H2 2020”. That has fed through to heightened transaction volumes, with Savills reporting gains of 131 per cent in London and 204 per cent in regional markets.

The UK residential market registered the most noteworthy gains, evidenced by a 40 per cent revenue increase. The domestic residential market continues to bubble away (so to speak), with demand for houses particularly impressive. But the pandemic continues to have profound effects, negative or otherwise, with the London new home market affected by the relative scarcity of international buyers due to travel restrictions. By contrast, regional volumes are heading in the right direction, as city dwellers continue to decamp to rural locales.

There are some areas of weakness, at least in relative terms. Central London investment and leasing activity was subdued by comparison to the residential market, partly due to travel restrictions and return-to-work guidance not issued until July.

Chief executive Mark Ridley cautioned that “pandemic risks continue including the current lockdowns in a number of Asian markets”, but went on to reveal that “the board expects the performance for the year as a whole to be meaningfully ahead of its previous expectations”. The shares are up by two-thirds over the past 12-months and now trade at 22 times the 2021 EPS estimate by investment bank UBS. Hardly too expensive, but we think we may be approaching the high-water mark for the UK residential market. Take profits – sell.