Henry Boot priced at trough valuation
One of the UK’s leading land development, property development and construction companies is well placed to ride out the economic and property market slowdown.
Sheffield-based Henry Boot (BOOT: 230p), one of the leading land development, property investment, development and construction companies in the UK, flagged up last year’s strong operational performance in a pre-close trading update that I covered last month in my 2022 Bargain Shares Portfolio Review.
Clearly, the property market is in a different place than it was 12 months ago, with activity levels across both commercial and residential markets now more subdued. That said, the forward sales should insulate the group to a degree, as should the intransigence in the planning system that is making housebuilders concerned about their land pipelines. These twin factors largely explain why analysts at Panmure Gordon expect Hallam Land to deliver even higher operating profit of £18.4mn this year on sales of 9,231 plots.
Weaker performance likely from other businesses
However, the growth at Hallam Land will not fully mitigate a weaker performance from the property investment and development business. Panmure expects the division to report 20 per cent lower operating profit of £20.6mn in 2023, the shortfall arising from a decline in the contribution from joint ventures. The construction division is also expected to see a fall in 2023 operating profit of around 9 per cent to £11mn, hence why Panmure now predict group pre-tax profit will decline from £45.6mn to £38.5mn on 3 per cent higher revenue of £350mn in 2023. On this basis, expect earnings per share to fall by a quarter to 18.3p, although analysts are still pencilling in another hike in the dividend to 7.2p.
This implies the shares are priced on a forward price/earnings ratio of 12.6, offer a prospective dividend yield of 3.1 per cent and are trading 22 per cent below book value – modest ratings that suggest that long-term holders should be rewarded in time. Moreover, with interest rates close to the so-called ‘pivot’, cost pressures easing as inflation starts to abate, and the UK likely to escape recession, both the economic and property market slowdown could be more benign than previously forecast.
Author: Simon Thompson, Associate Editor, Investors’ Chronicle
Managing Director, Research Analyst, Construction & Support Services