Anyone who reads the annual reports of big housebuilders will know that it is almost compulsory for developers to complain about the inadequacies of the planning system. Apparently, it prevents them from delivering more homes.
Redrow, the FTSE 250 developer, likes to complain about the protections for great crested newts. Berkeley, the London housebuilder, said recently that it could not build any faster because of the “changing planning environment”, as well as the complexity of actually getting on to a site. You get the idea.
Yet yesterday Taylor Wimpey said that the planning environment was now so good that it could start building more homes at a faster rate and could use up its short-term land bank more quickly. Best of all, the reduction in the amount of land it would hold is going to mean millions of pounds more in dividends for shareholders.
Since the national planning policy framework was introduced in 2012, forcing local councils to set out a five-year plan for their area’s housing needs, obtaining planning permission has become easier for builders. That means less land needs to be held to ensure a ready amount of supply. Over the medium term, Taylor Wimpey will reduce the size of its owned and controlled short-term land by about one year to four or four-and-a-half years, it told investors and analysts at a capital markets day yesterday.
Brushing aside the cynicism that this announcement comes just as the government is threatening to introduce a “use it or lose it” rule for developers and as Oliver Letwin, the Conservative MP, is concluding a report into whether housebuilders hoard land, this change by Taylor Wimpey is good news for shareholders. The group is increasing the proposed total dividend by 20 per cent from £500 million this year to £600 million in 2019. The total dividend will include an ordinary dividend, plus a special dividend. The ordinary dividend will increase from £150 million to £250 million. The board believes that this can be maintained even in a scenario where average selling prices fall by 20 per cent and volumes fall by 30 per cent (let’s hope that’s not tested). Then there is the special dividend that will be £350 million in 2019. So that’s an implied dividend yield of 9.4 per cent. The dividend is also covered by free cashflow.
Not only that, but Taylor Wimpey says that operating margins will be maintained at about 21 per cent to 22 per cent, and the return on capital will be boosted to 35 per cent, which is pretty punchy. Analysts at Peel Hunt believe that the land bank reduction could release an extra £500 million of capital.
Taylor Wimpey shares have fallen by 5 per cent in the year to date, in line with the housebuilding sector’s average, as investors began to wonder whether developers were reaching the peak of what volumes they could deliver. Taylor Wimpey’s move may change all that. It was the top performer on the FTSE 100 yesterday, with a 3.7 per cent rise in the share price to 202¼p.
The company has not given any specific guidance on the number of homes it expects to be building each year, as it says this can be unhelpful when it is often impossible to predict changing trends in the market. But a rough estimate would suggest Taylor Wimpey will be delivering 18,000 to 19,000 homes a year by around 2023. This would rival Barratt, Britain’s biggest housebuilder, which builds about 17,000 homes a year. Yet it will be nowhere near enough to match the demand for new homes, meaning there is no danger of oversupply.
Advice Buy
Why Big boost in dividend yield by 2019, bigger volume of homes in the pipeline and confidence about the future. Snap up these homes quick
ITE Group
If you’ve ever had to transport a wind turbine down the M1, or a floating dock across the Atlantic, the chances are you’ve attended Breakbulk. The trade show for cargoes too big to fit in a standard container is the top-selling event for ITE Group, the specialist exhibitions company, which announced ambitious plans to take delivery of its own bulk cargo yesterday.
ITE is paying £300 million in cash for the trade shows division of its rival Ascential, a deal that will double its size at a stroke. ITE is proposing a rights issue of up to £315 million to pay for the assets, which include Bett, the educational technology show, and CWIEME, the electric motors event — both big global franchises.
It’s a whopper of a deal for Mark Shashoua, ITE’s chief executive, who rejoined the company in 2016 after working there in his youth for his father and its founder Roger Shashoua, but at least he has the virtue of knowing the assets intimately. He used to work for Ascential.
The proposed combination has merits — there are £4 million to £5 million of potential synergies, there is scope for replicating well-attended events in new locations and footholds in India and China should help here — but the transaction has risks. It spreads ITE across a wide variety of sectors, from fashion to homeware to motors to technology. There is also a faint suspicion that it is picking up Ascential’s cast-offs. Ascential has retained its two most promising shows, Money 20/20 and Cannes Lions — the boondoggle for the advertising industry.
The price is relatively high, too, at 12.5 times ebitda profits. The capital-raising will cost £15 million in underwriting and other costs.
Mr Shashoua has plenty on his plate even without this deal, pushing through a three-year growth strategy. Interim results show moderate progress here, although statutory profits have sagged as he grinds through a programme of scrapping or selling uneconomic shows. The deal requires shareholder approval. Investors should wait for the prospectus for more details of the rights issue.
Advice Hold
Why The company has more work to do persuading shareholders to double up
