Henry Boot (BOOT), which sells builders land it has brought through the planning system as well as undertaking its own developments, has managed to complete several large projects well ahead of schedule, meaning profits for the year to December 2017 are going to be well ahead of expectations. True, this means that without further guidance from the company there is a chance that profits in 2018 will be down from 2017 because so much work has been booked a year early, but the excellent momentum behind the business is what we think investors should be focus on.
Strong land sales
Solid pipeline of development deals
Low gearing
Shares modestly rated
Income stream can be lumpy
Relatively modest divided yield
With demand for oven-ready building plots unlikely to diminish, especially with the government’s accelerated drive to increase home construction, we think that there is plenty of visible growth potential to come through on the land development side.
On the property development and investment side, projects completed ahead of schedule included the sale of the final 30,500 sq ft industrial unit at Thorne in Yorkshire and the sale of an 8,150 sq ft retail park in Monmouth. Then 80 residential units were sold on land in Prestonpans in Scotland and several industrial units in Markham Vale in Chesterfield.
Income from selling consented building plots to builders can be rather lumpy because achieving planning consent is a constant variable. However, Henry Boot’s operating arm, Hallam Land Management, managed to dispose of 14 schemes in 2017, including the final phases of sites at Biddenham in Bedfordshire for 233 residential units and 183 at Marston Moretaine. And contracts have been exchanged on a further four schemes in 2018, with sales in the year to October 2017 representing 2,048 residential units, up from 1,609 a year earlier. There are more than 35,000 units with either planning consent or going through the process.
| HENRY BOOT (BOOT) | ||||
| ORD PRICE: | 338p | MARKET VALUE: | £450m | |
| TOUCH: | 336-349p | 12M HIGH: | 350p | LOW: 195p |
| FWD DIVIDEND YIELD: | 2.5% | FWD PE RATIO: | 11 | |
| NET ASSET VALUE: | 183p | NET DEBT: | 26% | |
| Year to 31 Dec | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2014 | 147 | 29.8 | 18.6 | 5.6 |
| 2015 | 176 | 33.8 | 19.6 | 6.1 |
| 2016 | 307 | 41.0 | 23.9 | 7.0 |
| 2017* | 404 | 54.7 | 33.3 | 8.3 |
| 2018* | 386 | 48.2 | 29.5 | 8.4 |
| % change | -4 | -12 | -11 | +1 |
| Normal market size: | 1,500 | |||
| Matched bargain trading | ||||
| Beta: | 0.21 | |||
| *Peel Hunt forecasts adjusted PTP and EPS figures | ||||
The lumpiness of revenue means chief executive John Sutcliffe prefers to take a long-term view, and from this perspective profits should continue on an upward curve. It’s also important to remember that in the pipeline at the half-year stage there was work in progress with a gross development value of over £700m and a further £500m of pipeline opportunities.
Boot reduces risks by undertaking development work on a pre-let basis and by forward funding projects. Capital-light forward funded structures allow the company to take on projects that it would be unable to support if funded from the balance sheet; a typical example being the Aberdeen Exhibition Centre, which is being forward funded by the local authority.
Boot's dividend has risen steadily and is well covered by after-tax earnings. The dividend yield is modest, but investors buying the shares should be compensated by earnings growth powering share price gains.
