Every few years or so it is customary for politicians to announce they will invest millions into building a new garden town or village to address Britain’s housing crisis. The reality rarely materialises. No new towns have been designated under the New Towns Act 1946 since 1970 (a fun pub fact for you) and voters are cynical about such promises.
Yet away from the political bluster, Urban & Civic is quietly developing huge sites with thousands of homes on brownfield sites outside London. Most are in their infancy but the rewards are likely to be considerable once more momentum builds. The shares are worth latching on to now.
The company had half-year results out yesterday, posting a 4.3 per cent rise in net asset value, the preferred measure of profitability in the property sector, in the six months to the end of March to £458.8 million. Pre-tax profits rose to £10.1 million, up from £4.2 million at the same point last year. The interim dividend was 1.3p per share, up 8 per cent from a year earlier.
But the reported financials are not as important as the promise of value to come. Urban & Civic caught on early that the London housing market would become unaffordable to most buyers — as it has done — and people would be pushed out to commuter hotspots. As such it has specialised in huge developments on large brownfield sites that will cater to demand for the next two decades.
And when we say huge sites we mean it. One of its biggest projects is turning a former RAF base at Alconbury, used by the USAF during the Cold War, into 6,500 homes. The 1,425-acre site comes with a nuclear bunker built with reinforced concrete that is almost impossible to knock down. A growing housing shortage in Cambridgeshire, where workers in biotechnology and science industries face sharply rising house prices, means demand will be there for the 15 years it takes to develop the site. In a sign of confidence, the county council is to move from Cambridge to Alconbury, 40 minutes away.
Elsewhere, there is a 1,170-acre site in Rugby, formerly a BT long-wave transmission centre, which Urban & Civic is developing with Aviva Investors, and adding 6,200 new homes. It has another site at Calvert in Buckinghamshire, its first greenfield project, which the National Infrastructure Commission says has the potential to become a new city. In terms of housing plots, Urban & Civic now has 31,000 across eight sites. At present the company is contracted on 1,908 plots with 14 different housebuilders.
So far, 174 sales completed in the half year, with 180 in the pipeline, which suggests 348 homes over the year, higher than the management’s initial guidance of 315 units.
Usually, the peak capital requirement, which is how much money a developer needs to be willing to put up front before returns start coming in, on large schemes is very high, making it a risky business.
However, Urban & Civic largely relies on loans from Homes England, a public body that uses government funds, to build the infrastructure needed on such large sites. That allows it to offer a pleasing deal to builders in which Urban & Civic is not paid until a house is sold.
The shares are up 8 per cent year to date, outperforming the FTSE Property sector by 9 per cent. They are trading at a 2 per cent discount to reported net asset value at 317p, which is promising given the steady profits that will begin to emerge soon and prospects for more NAV growth.
Best of all, the company’s chief executive Nigel Hugill believes that government support for big sites means Urban & Civic will soon be able to work on 14 to 16 different huge developments. So there is even more growth in the pipeline.
ADVICE Buy
WHY Surge in value likely in future years as huge housing sites gather momentum and sales
Johnson Matthey
Buy a tonne of oil and it will cost you a few hundred dollars. Buy a tonne of cobalt and it will cost you more than $90,000 (Robert Lea writes).
The price of cobalt has quadrupled over the past two years — and this matters to anyone who thinks that cars running on electric batteries are the future. Cobalt is the stuff that goes in a lithium nickel oxide battery to prevent a thermal runaway, otherwise known as explosion and fire. As such it is the crucial component of the batteries of the future and the demand is making the fortunes of mine owners in Africa, China and Australia.
If the internal combustion engine becomes a museum piece some time in the 2040s then we will be needing to source a lot more cobalt than oil.
Johnson Matthey, one of Britain’s great heritage industrial companies, has belatedly jumped on the battery-cell bandwagon.
There is some symmetry to this and a hint of the insurance policy at Johnson Matthey. Nearly two thirds of its £3.8 billion yearly sales come from its “clean air” division, which helps to build the catalytic converters that reduce automotive emissions and detoxify vehicle pollutants. It is also a business dependent on the internal combustion engine. Prospects for the divisions remain good for some years to come. But what then?
Johnson Matthey is talking about “break out growth” for its battery materials business and says that it is working with household names of the auto industry, including Jaguar Land Rover. It is building a test and manufacturing facility at Clitheroe in Lancashire, though Britain has lost the contract to build a factory for when Johnson Matthey goes into full production because the firm has decided to go where the automotive supply chain is in central Europe.
The problem with Johnson Matthey is that no one actually knows how the technology or the regulatory environment will play out, nor whether batteries providing a decent range for a car will be affordable. On yesterday’s announced earnings of 208p a share the stock price of £35.08 (up 111p) is on a multiple of 17. It is high enough for what we can see in front of us.
ADVICE Avoid
WHY Shares have run up far enough in excitement over battery materials development
