Since the initial public offering in October 2017, Scottish housebuilder Springfield Properties (SPR) has hit the ground running, helped by continued demand for both private dwellings and affordable homes. Despite having substantially superior growth prospects to peers, its shares have one of the lowest rating in the sector. Meanwhile, the low margins and returns on capital that help explain the divergence, look set to improve.
Strong demand for housing in Scotland
High forecast growth
Little exposure to Help to Buy
Affordable housing growth
Modest returns
The shares are thinly traded
Springfield has an emphasis on affordable housing, where it has been successful in securing several framework agreements with local authorities in a drive to meet the Scottish government’s target of building 50,000 affordable homes between 2016 and 2021. The division's progress has been significant, with the number of completions in the year to May 2018 up by more than two-thirds. However, with average selling prices at just £120,000, this division still only accounted for 28 per cent of sales last year.
Private housing is the principle revenue generator. While some English housebuilders have considerable reliance on the Help-to-Buy scheme, Springfield has less exposure because the scheme in Scotland can only be used to buy new homes up to £200,000 compared with its average selling price is £221,000. And prices are rising, with house price inflation in Scotland playing a game of catch-up with England. The current rate is around 5 per cent, which should be more than enough to alleviate margin pressure from rising input costs.
| SPRINGFIELD PROPERTIES (SPR) | ||||
| ORD PRICE: | 120p | MARKET VALUE: | £116m | |
| TOUCH: | 115-125p | 12-MONTH HIGH: | 139p | LOW: 104p |
| FORWARD DIVIDEND YIELD: | 4.3% | PE RATIO: | 8 | |
| NET ASSET VALUE: | 82p | NET DEBT: | 19% | |
| Year to 31 May | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2017** | 111 | 6.7 | 6.3 | nil |
| 2018 | 141 | 9.8 | 9.3 | 3.7 |
| 2019* | 171 | 14.5 | 13.6 | 4.4 |
| 2020* | 195 | 17.0 | 15.9 | 5.2 |
| % change | +14 | +17 | +17 | +18 |
| Normal market size: | 3,000 | |||
| Beta: | 0.81 | |||
| *N+1 Singer forecasts **Pre-IPO | ||||
Total group output of 770 new homes is relatively modest but is growing fast, up by a quarter in the year to May 2018. And to cater for the rate of expansion, it has added significantly to its land bank which was expanded in the last financial year by 35.7 per cent to 12,476 plots, equivalent to 15 years’ supply. There is also greater earnings visibility in the Scottish market because purchasers must sign a missive around six months before completion which locks them into the deal.
As well as building its land bank, Springfield has been growing through acquisition. It paid £20m for Dawn Homes in 2018 and earlier this month bought Walker Group for £31m, £6m of which is contingent on planning approvals. The company focuses on building private homes within Edinburgh’s commuter belt and currently has five active sites with a gross development value of £100m. There is also a useful land bank with a gross development value of £413m.
The shares are currently trading at just 1.2 times tangible book value compared with a peer group average of 1.7 times. What's more, forecast growth is vastly superior to rivals. Still, based on S&P Capital IQ data, an operating margin of 8 per cent last year and a return on average capital employed (ROCE) of just over 11 per cent is paltry by the sector's standards (averages stand at about 19 per cent and 20 per cent, respectively). However, returns are expected to head upwards from here, and while the Walker acquisition may have added to the debt pile, in the last financial year net debt more than halved to just £15.3m.
| Name | TIDM | Mkt cap | Price | P/TangBV | Fwd NTM PE | DY | Ebit margin | ROCE | Fwd EPS growth FY+1 | Fwd EPS growth FY+2 | 3m Upgrade/downgrade | 3-mth momentum |
| McCarthy & Stone | LSE:MCS | £706m | 131p | 1.0 | 12 | 4.1% | 10% | 7.8% | 18% | -6.0% | 7.7% | -4.3% |
| Crest Nicholson | LSE:CRST | £951m | 370p | 1.1 | 8 | 8.9% | 17% | 17% | -14% | 4.4% | -19% | 4.2% |
| Springfield Properties | AIM:SPR | £116m | 120p | 1.2 | 9 | 3.1% | 7.6% | 11% | 20% | 12% | 10% | 1.3% |
| Bovis Homes | LSE:BVS | £1,382m | 1,028p | 1.3 | 10 | 4.6% | 12% | 10% | 48% | 3.6% | 2.3% | -1.1% |
| Bellway | LSE:BWY | £3,436m | 2,794p | 1.3 | 6 | 5.1% | 22% | 26% | 3.0% | 3.1% | -2.2% | -7.0% |
| Redrow | LSE:RDW | £2,103m | 583p | 1.3 | 6 | 5.0% | 20% | 24% | 5.6% | 5.0% | -0.7% | 3.9% |
| Barratt Developments | LSE:BDEV | £5,705m | 563p | 1.6 | 8 | 8.0% | 18% | 17% | 5.1% | 2.6% | - | 5.6% |
| Taylor Wimpey | LSE:TW. | £5,370m | 164p | 1.8 | 8 | 9.5% | 21% | 18% | 5.2% | -2.8% | -1.9% | -0.2% |
| The Berkeley Group | LSE:BKG | £4,883m | 3,797p | 1.8 | 10 | 2.4% | 29% | 33% | -26% | -25% | - | 5.5% |
| MJ Gleeson | LSE:GLE | £396m | 726p | 2.1 | 12 | 4.4% | 19% | 20% | 7.7% | 10% | - | 5.5% |
| Countryside Properties | LSE:CSP | £1,384m | 310p | 2.2 | 8 | 3.5% | 15% | 22% | 14% | 10% | -2.9% | -1.5% |
| Persimmon | LSE:PSN | £7,593m | 2,399p | 2.8 | 9 | 9.8% | 28% | 29% | 12% | 0.4% | 0.0% | 2.5% |
| Average (excl. SPR) | - | - | - | 1.7 | 9 | 5.9% | 19% | 20% | 7.2% | 0.5% | -2.1% | 1.2% |
Source: S&P Capital IQ
