Housebuilders & Estate Agents – House Rules IV
19 April 2018
The February/March results season did little to change our bullish view on the UK new housing market. It also did little to shake our more cautious view on transactions in the second-hand housing market. News flow from the housebuilders has been consistently robust, while the estate agents have been struggling with softer volumes. The Housebuilders' share prices are down 7% ytd, while the Estate Agents' share prices are off 10% ytd on average.
Increasing the supply of new homes, which in turn improves affordability, especially for younger buyers, is a core policy for the current Government. As a result, we expect HTB to continue well into the future (albeit with some limits imposed) while the Letwin review and final housing white paper will continue to increase land supply and hopefully address some of the labour and materials issues. Leaseholds and ground rents remain harder to call, but again our core stance is that we don’t see new policies damaging housing supply to any real extent.
Our forecasts see the housebuilders delivering an average 7.2% dividend yield per annum over the 2018-20 period combined with a 9.6% annual growth in NAV per share. Balance sheets remain in very good shape and there is limited pressure on costs (especially land). We forecast three-year revenue CAGR of c4%, 6% in EBIT and 8% in NAV per share.
After a difficult 2017, where transactions volumes were lower and commission rates remained under pressure, the traditional agents have seen no let-up in 2018. Sales pipelines are down on the prior year and there are no signs of or likely catalysts for a near-term pick-up in activity. While sales transaction comparatives begin to ease through the second half, the sector is faced with the threat of losing a material proportion of income/profit when the lettings fee ban comes into force in 2019. The outlook remains challenging.
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