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Hidden value in Henry Boot

Demand for consented land remains as strong as ever
March 28, 2019

Demand for land with planning consent to build new homes remains strong despite some signs of weakness in the housing market, especially in London. Supplying that land is what Henry Boot (BOOT) does well. 

IC TIP: Buy at 261p
Tip style
Growth
Risk rating
Medium
Timescale
Long Term
Bull points

Low debt

Unrealised value in its land bank

Continued demand for building plots

Shares cheaply rated 

Bear points

Planning delays

Brexit worries

Sure, there are worries about whether the housing market will slump if Brexit takes a turn for the worse, but we feel that the shares have been harshly treated in losing a quarter of their value last year. True, there has been some recovery this year, but Boot still trades at just 1.1 times forecast net tangible assets. Other metrics are equally attractive. As a defensive measure, some of the cash generated has been used to pay down debt, which is now at just £18.4m. Cash generation at £22.3m was down from £46.3m a year earlier, but that was after a big jump in working capital of £28.4m that reflects investing in its land portfolio and higher levels of contracting activity.

Hallam Land is the land promotion business, and sold 3,573 units on 24 sites last year. It still holds 14,325 acres, as well as 16,489 units with planning consent. The real value of this is hidden because there is no recognition of the increase in value even when planning is obtained with everything recognised only at sale.

Using conservative estimates, this 'hidden value' equates to gross profits of around £160m. In addition to this, there are nearly 12,000 plots going through the planning process and another 1,480 plot sales exchanged but awaiting completion.

HENRY BOOT (BOOT)   
ORD PRICE:261pMARKET VALUE:£347m
TOUCH:260-269p12-MONTH HIGH:310pLOW: 230p
FWD DIVIDEND YIELD:4.2%PE RATIO:9
     
NET ASSET VALUE:225pNET DEBT:6%
Year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201630741.023.97
201740955.432.18
201839748.628.39
2019*35050.328.210
2020*36251.529.511
% change+3+2+5+10
NMS:1,000   
     
BETA:0.71   
*Peel Hunt forecasts

Notable successes include a site in Coventry, where a parcel of land has been removed from the green belt. Planning permission has been applied for 2,625 plots, 15 hectares of commercial development, a school and other community facilities. This is significant because Coventry is surrounded by green belt, so there is very limited development potential. It’s also useful in that the scheme has been well supported by the local authority with which the company is working closely.

It’s not all plain sailing, however. Profits were down by a third on the property investment and development side. Although this division performed well, it was unable to progress certain schemes as quickly as it had originally hoped because of planning delays and the higher levels of due diligence that now accompany real estate transactions.

Henry Boot also has its own jointly-owned housebuilding operation called Stonebridge Homes. Completions in 2018 were a modest 145, but that was an 84 per cent increase on the previous year, although once again planning delays restricted land replenishment.

Headline profits were trimmed by £1.6m due to increased costs in the pension scheme and mainly because of the fall in property investment and development revenue.