header
search-icon
mobile-menu-icon search-icon

RESEARCH

Clients can browse and search the Peel Hunt research library and archive.

TRADING

A tool for our clients to submit and manage orders with Peel Hunt. 

REGISTER FOR OUR RESEARCH PORTAL

Thank you, your registration has been received.
We will be in contact with you shortly.

I'm interested in (tick all that apply)

SEARCH

PEOPLE
SERVICES
NEWS

Financial Advisory and Capital Markets Services to Corporates

Comprehensive coverage of over 350 companies

Investment ideas and execution for institutional investors

Complete UK pricing coverage and worldwide access

Our joined-up approach allows us to consistently deliver value

A wealth of experience, strong collegiate ethos underpinning our joined-up approach

Our principles define the relationship between our people, our departments and our clients

We are committed to making a difference in the communities we live and work in

An environment committed to the development of our colleagues

An internship programme for undergraduates as part of their study

Insight Image

Britain’s building sector has started to grow again after activity slumped during lockdown. Data firm Markit reported that activity in June rose at the fastest rate in the sector in almost two years. Construction PMI rebounded to 55.3 in June, up from 28.9 in May. Whilst this is a positive signal, it’s a small rise off a low base and it’s early days in the recovery. Firms also reported problems accessing materials and many are still cutting jobs, suggesting uncertainty about the outlook. However, it is clear that the direction of travel is improving steadily.

Headlines

• European retail sales up 17.8% in May month on month.

• Pret a Manger has announced plans to shut 30 stores.

• UK car sales in June down 34.9% year on year.

• German factory orders up 10.4% in May month on month, Destatis.

Company news

Buildings & Construction

Barratt Developments# – “Since the removal of Government restrictions on housing market activity on 13 May 2020 there has been a welcome recovery in internet activity, site visitors and net reservations across both the industry and our business. However, the prospects for the wider UK economy and the medium term impact on the new homes market remains uncertain and will only become clearer over the coming months.



Key to the health of the new homes market is mortgage availability. Whilst there is a reduced level of availability of higher loan to value mortgages, demand from first time buyers looking to use Help to Buy has been significant since the market reopened.

To help ensure the UK’s housing recovery is sustained, capacity in the industry is maintained and to ensure that customers who planned to use the current Help to Buy scheme still can, given the unprecedented backdrop, we believe it would be sensible for Government to extend the existing scheme beyond March 2021.

Sales performance – The sales rate for the full year was 0.60 (2019: 0.70) net private reservations per active outlet2 per week, with a rate for the period to 22 March 2020 of 0.73 (period to 24 March 2019: 0.68) net private reservations per active outlet2 per average week. Following the reopening of our sales centres, we have seen an increase in lead volumes, which are running at levels in excess of those achieved in the same period in FY19. In the six weeks since reopening we have achieved a sales rate of 0.63 (2019: 0.69) net private reservations per active outlet2 per average week with no discernible change in pricing levels.

During the year, we operated from an average of 366 (2019: 379) active outlets2 (including JVs) and as at 30 June 2020 we were operating from 348 (2019: 371) active outlets2 (including JVs).

The unprecedented impact of Covid-19 has significantly reduced our completion volumes this year to 12,604 homes (2019: 17,856 homes) including JVs, of which 10,364 homes (2019: 9,437 homes) were completed in the period to 22 March 2020. We delivered 9,568 private home completions (2019: 13,533 homes), 2,466 affordable home completions (2019: 3,578 homes) and 570 JV home completions (2019: 745 homes).

Selling prices have remained resilient throughout the year. Our total average selling price (‘ASP’) for the year was c.£280k (2019: £274.4k), with private ASP at c £311k (2019: £312.0k), both at similar levels to last year.

Forward sales – Our forward sales position is strong, with total forward sales (including JVs) as at 30 June 2020 at a value of £3,249.7m (30 June 2019: £2,604.1m), equating to 14,326 homes (30 June 2019: 11,419 homes).

Since the onset of Covid-19 our forward sales have remained resilient, and now that we have restarted construction, we are initially focusing on delivery for those customers who have reserved or exchanged contracts with us. Given the timing of the Covid-19 lockdown and the progression of reservations to exchanged contracts, 73% of homes (2019: 76%) within our total forward sales (including JVs) were contractually exchanged at 30 June 2020 providing clear visibility for the start of FY21.

Build performance – Our sites are operating safely with a detailed set of working practices and protocols that have been established in line with the latest guidance from Government, Public Health Authorities and the Construction Leadership Council. This includes changes to signage, site welfare facilities and compounds, site access and walkways. A nominated social distancing marshal is present on all sites to ensure policy compliance and we provide induction, training and support for our employees and sub-contractors.

The health and safety of our employees, sub-contractors and customers remains our first priority. On our sites that have been reopened for four weeks or more we are operating at around 75% of construction activity levels prior to lockdown, a reflection of social distancing requirements, the timing of subcontractors returning to sites and our prioritisation of build required to meet forward sales commitments. We now expect site productivity levels to continue to improve towards those achieved prior to lockdown, particularly following the most recent changes to social distancing requirements in England, the return of additional subcontractors and extended operating hours on many of our sites.

We have a robust and carefully managed supply chain with around 90% of housebuilding materials sourced by our centralised procurement function being manufactured or assembled in the UK, which has proved particularly valuable as we reopened our sites in the Covid-19 environment.

The Group has incurred significant additional costs arising from Covid-19 including the controlled closure, hibernation and recommencement of our activities. In addition, site durations are now expected to be extended, resulting in increased site costs. Further details will be included in our full year results announcement.

Resilient balance sheet Funding and liquidity – As at 30 June 2020 the Group had net cash of around £305m (30 June 2019: net cash £765.7m). Throughout the second half we have actively managed our cash flows to ensure resilience and as a result we operated with average net cash of c. £237m (H2 FY19: £167.9m). Since our return to site our cash flows have benefitted from completion delivery, reduced working capital requirements and the timing of land payments.

The Group has £200m of drawn US private placement notes and a £700m undrawn revolving credit facility. The Group has also received confirmation that it is eligible to access funding under the Covid Corporate Financing Facility (‘CCFF’) should that be required.

Land creditors at around £800m (2019: £960.7m) have reduced to c.25% (30 June 2019: 31.3%) of the owned land bank in line with our operating framework of 25% to 30%. This follows the targeted reduction achieved at the half year and a lower level of land additions in the second half due to our suspension of land buying activity, partly offset by changes in the timing of land creditor payments. As at 30 June 2020 c.£350m of our land creditors fall due for payment in the first half of FY21.”

Industrials

MacFarlane– “Our sales performance has been more resilient than previously anticipated in the second quarter of 2020 with total revenue only 7% down compared to the same period in 2019. We have continued to experience weakness in the automotive, aerospace and high street retail sectors but this has been partly offset by underlying strength in the e-commerce, medical, food and household essentials sectors, which demonstrates the benefit of our broad customer base. This will result in sales for the half year, inclusive of the benefit of last year's acquisitions, being 3% down on the first half in 2019.



All our sites have remained open and trading throughout the period albeit with reduced levels of activity due to market disruption. The sites are operating in line with local social distancing and hygiene requirements to ensure the health, safety and wellbeing of our staff and our customers. The majority of our sales and administration activities are being carried out by staff working from home in accordance with home working programmes.

People – In line with the UK Government’s aim to preserve employment levels, we furloughed approximately 30% of staff through the Coronavirus Job Retention Scheme in the second quarter to protect employment during the period of uncertainty. However, in the light of the better than expected trading performance, and as we gradually bring employees back from furlough, we do not intend to make any further claims under the Scheme and in the second half of the year we will seek to repay sums already received.”

Real Estate

Urban logistics – “Is pleased to announce that 98% of rent due for the quarter to September has been collected, the remaining 2% is expected to be collected imminently.”



Retail

Pret A Manger – “Is to close 30 outlets and is expected to cut at least 1,000 jobs at other shops as part of a post-pandemic restructuring. Trading remains slow, with sales down 74% year-on-year. Management reported that recovery in the UK has been much slower than in other countries.”



Lifting restrictions

• Greece and Britain will fully resume flights between the two nations on 15 July, Greek government spokesman Stelios Petsas said today.



Other

• The border between New South Wales and Victoria in Australia is being closed, because of an outbreak in Victoria.

• The UK government announces a £1.57bn ($1.96bn) package to protect theatres, galleries, museums and other cultural venues.

• Authorities in the Spanish regions of Galicia and Catalonia have imposed local lockdowns on some 300,000 people following outbreaks of the virus. Only those travelling for work are allowed to leave or enter Galicia’s coastal district of La Mariña from midnight on Sunday to Friday.

• Greece is closing its borders to Serbians today, after rising numbers of cases in the Balkan country.

• New car registrations fell 34.9% over June, driven by larger falls in fleet and business, with private registrations down 19.2%. While some car show rooms reopened in England, dealerships in Wales and Scotland remained closed over June.



#corporate client of Peel Hunt