- Annual revenue up 5 per cent to £359mn
- Pre-tax profit falls 18 per cent to £37.3mn
Annual results from Sheffield-based Henry Boot (BOOT:182p), a land development, property and construction company, reflect more subdued activity levels across commercial and residential markets and lower profits from property development activities.
The construction arm had a challenging year, trading well below expectations (operating profit declined from £12.1mn to £6.5mn). Two of the largest contracts – a £40mn build-to-rent (BTR) scheme and a £42mn urban development scheme – suffered delays and were hit by material shortages. In addition, the developer of a third project in Sheffield, a residential scheme, fell into administration, which resulted in building costs not being fully recovered. While management is actively pursuing larger projects with a contract value above £50mn, some of these opportunities are now likely to fall into 2025, so don’t expect a strong recovery this year.
The group’s land promotion unit, Hallam Land, was a stand-out performer, delivering 23 per cent higher operating profit of £21.4mn selling 1,944 plots at seven locations and growing its land bank by 5 per cent to 101,000 plots. However, although analysts at brokerage Panmure Gordon forecast a ramp-up in sales to 3,000 plots this year, they pencil in a divisional operating profit of £16.5mn based on a 45 per cent lower gross profit per plot of £8,500. This largely explains why Panmure expects current-year group pre-tax profit to decline by 19 per cent to £30.2mn on slightly lower revenue of £349mn. The other factor is the ongoing lower profit from development work, which could contribute operating profit of £20.8mn, down from £22.2mn in 2023 and £25.7mn in 2022. The current-year forecast mainly reflects more cautious assumptions on sales volumes and selling prices for residential schemes.
That said, an easing of monetary policy later this year should boost demand for housing and residential land, and stimulate investor interest in commercial property and BTR schemes.
Low rating
In the meantime, the board maintained its progressive dividend policy, declaring a 10 per cent higher dividend per share of 7.3p. Analysts expect a further hike in the 2024 payout to 7.8p, implying the shares offer a prospective dividend yield of 4.3 per cent.
There is clearly value in the shares, which are rated on 12 times potentially bottom of the cycle 2024 earnings per share estimates, and on a 40 per cent discount to net asset value, having fluctuated from book value parity to a premium of 40 per cent in the past 20 years. However, they are likely to continue to move sideways until there is evidence of an upturn in the group’s key housing and development markets, a point I made when I last rated the shares a hold, at 198p (‘This 137-year-old property firm is primed to recover’, 20 September 2023). And for that, interest rate cuts are needed. Hold.
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