The perceived Brexit-shaped cloud over the UK’s housing market has tarnished sentiment towards estate agent Savills (SVS) this year, sending the group’s share price down 16 per cent in the past 12 months. Investors now face a question: is the sell-off justified in the face of weakening markets, or does the current valuation (11 times forward earnings) provide a buying opportunity?
On the one hand, Savills has a well-diversified portfolio and operates in many different divisions and geographies. So even though UK commercial transaction fee income was down 14 per cent in the reported period, overall revenue was up 2 per cent. Moreover, the UK is still seeing strong demand from overseas investors (who made up almost three-quarters of the £9bn-worth of the domestic transactions), meaning revenue here actually rose 2 per cent.
However, the UK contributes a substantial proportion of underlying profits (56 per cent), so rising costs there dragged group profits down 12 per cent to £42.4m. What’s more, the UK isn’t the only area of weakness. Asia Pacific, Savills’ second-largest market, reported a 5 per cent and 15 per cent decline in revenues and profits respectively due to a delay in the timing of completions. Management has said the pipeline remains healthy in those regions, but broker Peel Hunt has still forecast a 2 per cent decline in adjusted EPS to 72.7p in the year to December 2018.
| SAVILLS (SVS) | ||||
| ORD PRICE: | 827p | MARKET VALUE: | £ 1.18bn | |
| TOUCH: | 827-828p | 12-MONTH HIGH / LOW: | 1,029p | 824p |
| DIVIDEND YIELD: | 1.8% | PE RATIO: | 15 | |
| NET ASSET VALUE: | 303p* | NET DEBT: | 22% | |
| Half-year to 30 Jun | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2017 | 714 | 32.4 | 16.1 | 4.65 |
| 2018 | 728 | 26.7 | 13.8 | 4.80 |
| % change | +2 | -18 | -14 | +3 |
| Ex-div: | 06 Sep | |||
| Payment: | 03 Oct | |||
| *Includes intangible assets of £406m, or 285p a share | ||||
