Glenveagh Properties: FY18 results provide comfort on costs and FY19 targets

06 Mar 2019

Glenveagh released its FY18 results this morning which were in line with its post-end-year trading statement released on January 4th. It completed 275 unit sales and booked revenues of €84.2m. Gross margin was 18.2% but we understand underlying gross margin (i.e. excluding land sales) was approximately 17%. Admin expenses of €17.2m (net of depreciation and exceptionals) were a little higher than our €16.5m forecast, but the Loss After Tax was a touch better (€3.5m vs forecast of €3.7m).

With the headline numbers previously announced however, our focus is on the outlook for FY19 and two points in particular should be well received by investors. Firstly, Glenveagh has reassured on the cost front noting that cost inflation is currently “less than 3% on current tendering” which represents an improvement on its previous guidance of c.4%. In addition, 90% of 2019’s costs are now agreed. This is reassuring given the prevailing narrative of escalating costs in certain segments of the domestic construction industry. Secondly, while guidance for 725 unit sales in FY19 is unchanged, this is now firmly underpinned by 451 units “signed, closed or reserved” which excludes the likely sale of Herbert Hill (90 units) to a single buyer. This is a significant step-up from 202 pre-sales at year-end, but we understood the new total includes an element of bulk sales to local authorities (social housing) and the PRS market. Nevertheless, execution risk for FY19 has been greatly reduced.
 
Glenveagh has also announced the off-market acquisition of two sites in Co. Kildare at Leixlip (17km from Dublin city centre) and Newbridge (45km from the city) with planning permission for 793 units and costing c. €50m. Further sites costing €26m (730 units) are in exclusivity and the combined cost of these acquisitions is €51k/unit – firmly in line with the average cost of previous transactions. Elsewhere, the company has been encouraged by pre-planning discussions regarding its East Road site and has submitted a fast-track planning application for 560 units, +110 vs. previous guidance and potentially reducing the cost/unit here from c.€93k to c.€75k.
 
Irish Economy: Unemployment at a joint post-crisis low
 
The latest Monthly Unemployment release from the CSO shows that the seasonally adjusted unemployment rate fell 10bps m/m to a joint post-crisis low of 5.6% in February.
 
The unemployment rate peaked at 16.0% during the crash before falling sharply as Ireland’s economic prospects improved. The economy is adding 1,000 jobs a week (total employment was +2.3% y/y in Q418). The seasonally adjusted number of people out of work fell by 26,500 during 2017 (to 146,600) but since then it has contracted at a more modest pace (cumulative reduction of 11,500 since end-2017), which is probably explained by the more uncertain external environment weighing on hiring growth (while it is still impressive, the Q418 growth in total employment rate of 2.3% y/y represented a five quarter low).
 
Assuming no enduring adverse developments in the Brexit negotiations, our sense is that hiring growth will accelerate as 2019 progresses, leading to fresh multi-year lows in the jobless rate.
 
Irish REITs and Housebuilders: Crane count at a new high
 
The latest Irish Times monthly ‘crane count’ for Dublin, conducted in conjunction with Savills, showed that a record 123 cranes loomed on the capital’s skyline on at the beginning on March.
 
This represents the fifth successive month when the survey has reached a new high.  This figure has increased nearly fourfold, from a count of 31 when surveying began in February 2016.This month’s total represents an increase of two on February’s count. Of the machines, 49 (+3) are located on the north side of Dublin’s River Liffey, with 74 (-1) on the south side.
 
The crane count could well continue its upward momentum as a number of large schemes are due to commence soon in the North Docklands and work on DIT’s Grangegorman in Dublin 7 continues.
 
“Resilient” and “prepared”
 
Bank of England Financial Policy Committee (FPC) statement: The BoE yesterday published the statement and record from its 26 February 2019 Financial Policy Committee meeting. Amongst the main points the BoE deemed that the core of the UK financial system was resilient and prepared for the risks associated with a possible disorderly Brexit. On this front the BoE noted that most of the risks to the disruption of financial services in the event of a “no deal” had been mitigated by legislation by UK authorities. Meanwhile it was also noted that EU (ESMA) authorities had granted UK clearing houses a one year period of equivalence in order to avoid a material disruption to the derivatives markets in a “no deal” scenario.
 
Swap line reactivated
 
The BoE did however highlight the difference between financial stability and market stability and stated that if a disorderly Brexit were to occur, significant market volatility was expected. Overall the BoE assessed that both global and domestic vulnerabilities had not changed significantly since the November Financial Stability Report and as such maintained the Counter Cyclical Capital Buffer at 1%. A final point worth noting is that the BoE provided some guidance on what it plans to include in the 2019 Bank stress tests. Addressing the changing risk backdrop the BoE signalled that the 2019 tests would see a bit more focus on US corporate debt and risks from the Eurozone and that it would launch a pilot cyber stress test later this year. In a joint communiqué yesterday it was also announced that the BoE and the ECB will be reactivating an existing swap line in order to provide market liquidity in preparation for the UK’s possible withdrawal from the EU on March 29th.
 
Strong UK PMI data and Carney comments keep sterling afloat
 
The PMI for the UK’s largest sector rose to 51.3 from 50.1 in January, beating expectations of a decline below the 50 breakeven level (consensus 49.9, Investec 49.8). Despite the rise in the index, the report is still downbeat. Indeed, IHS Markit flagged that “Worse may be to come when pre-Brexit preparatory activities move into reverse” whilst employment numbers for the sector were recorded as declining at the fastest pace for over seven years.  Later yesterday evening, sterling took another pop higher to take the benchmark EUR/GBP rate back below the £0.86 level after BoE Governor, Mark Carney said that the “market path of BoE rates may not be high enough”.