ANALYSIS: The latest updates from housebuilders and the supply chain

March 25, 2020 / Isla MacFarlane
ANALYSIS: The latest updates from housebuilders and the supply chain

David O’Brien, equity analyst at Goodbody, gives his take on the latest updates from housebuilding heavyweights and their supply chain.

He said: “The recent statements following Covid-19 disruption will not come as much as surprise and we continue to see decisions by management teams to cancel or postpone dividends as prudent, as preserving cash is the order of the day.

“Overall, the companies mentioned are well placed to weather the storms through a mix of solid operational track records and healthy balance sheet positions.”

Ibstock

Ibstock has temporarily suspended production but has good liquidity headroom

O’Brien said: “In similar vein to peers, Ibstock has made the decision to temporarily suspend production at its manufacturing facilities and is focused on cash preservation.

“Overall from a liquidity perspective the group is in a Net Debt position of £115m (as of December 31st) which is broadly broken down as £30m of leases, £104m of borrowings (all due in 2-5 years) offset by £19m of cash. The group do note that it has significant liquidity headroom with an RCF totally £215m at its disposable which does not mature until March 2022.

“In light of the uncertain environment all measures to preserve cash are to be welcomed. Ibstock’s significant liquidity headroom will help the group to get through what is sure to be a rocky few weeks and months ahead.”

Persimmon

Persimmon has ample cash to weather any storm

O’Brien said: “Persimmon has announced it is closing all of its sales offices from 26 March but will support customers by phone and online. Regional offices will also close while construction sites are commencing an orderly shutdown.

“The group has a healthy balance sheet position which will help it weather the storm. The group sits on £610m in cash with availability of a £300m RCF and has £195m of land creditors due in the current year. The supplementary dividend of 125p has been cancelled while the ordinary dividend of 110p has been postponed with management indicating payment of this will be reassessed later in the year.”

Bellway

Bellway shift focus to sites near completion as cash preservation becomes key

O’Brien said: “Unlike Persimmon, it seems as though construction will continue to some extent for Bellway, albeit with the focus being re-prioritised to sites which are in the later stages of production. In similar vein, to Persimmon and all the other UK centric names for that matter, Bellway has decided to postpone its interim dividend.

“From a liquidity perspective, Bellway are in a net cash position of just under £5m, with access to committed bank facilities of £545m. Although we don’t know the exact quantum of the land creditors due in the next 12 months, we do know that its land creditors totals £270m and that the group state that from a balance sheet perspective that it is in a strong position to withstand the likely disruption.”

Grafton Group

Plenty of liquidity to manage the lockdown in the UK

O’Brien said: “Following yesterday’s announcement of a UK shutdown, Grafton Group has closed all of its branches and manufacturing sites for a period of three weeks. This is subject to clarification from the government on the supply of materials through a small number of branches to support essential repair and maintenance activity.

“It is worth nothing that the Group’s balance sheet is robust and liquidity is strong. As of March 23, the group has £303m of cash on hand and an undrawn credit facility of £275m with no refinancing until 2023. As expected, the final dividend in 2019 has been suspended preserving £30m.

“Although the uncertainty is extreme we believe the proven management team – which is the longest serving in the sector –  the ability for Grafton to manage cashflows and the strength of the balance sheet leaves it well placed to navigate these choppy waters. Indeed we note that the group’s Irish and Dutch businesses represent over 40% of group profits.

“Ultimately we believe the UK economy will require a functioning merchanting network to maintain critical facilities and homes. We believe the stock offers very attractive long term value.”

Forterra

Well positioned to manage an elongated shutdown

O’Brien said: “Forterra has decided to suspend all business operations as soon as possible until further notice.

“Management notes the balance sheet is strong. The group has fully drawn down its existing £150m cash facility which combined with existing cash brings the total cash reserves to £70m with a further undrawn accordion facility of £50m. Non-essential discretionary expenditure has been halted and no new commitments will be made with the final dividend is being suspended which will preserve c.£15m.

“Taking into account the fixed costs within Forterra we estimate that unmitigated operating cash costs per month are c.£11m. With Government aid and the group’s liquidity the company can manage an elongated period of shutdown.”

Taylor Wimpey

Cash preservation to the fore as construction sites close

O’Brien said: “Taylor Wimpey has announced the closure of all of its show homes, sales centres and most importantly construction sites in response to COVID-19. The group highlights that cash preservation is front of mind and so has also decided to fully drawdown its previously unutilised RCF of £550m (matures in 2025), leaving the group in a healthy gross cash position of £807m and net cash of £165m.

“Overall we see the decision to cancel its final and special dividends, as well as drawdown its RCF, as prudent.”

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