Springfield Properties – Scotland’s only quoted housebuilder awaits market recovery while its shares look cheap

The Springfield Properties (LON:SPR) group is one of the largest homebuilders in Scotland, constructing high quality homes from the highlands to the Scottish Borders. 

The year to end May 2022 saw a record year with 1,242 completions.

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However, since last summer times have been somewhat challenging for the company.

From its shares hitting 155p last April, by the middle of last month they had more than halved to just 71p.

The company, which delivers private and affordable housing, issued its first half year Trading Update in mid-December as a prelude to the latest Interims that have just been reported.

That update noted that despite a strong order book and sustained demand as it started the 2023 financial year to end May, the subsequent rise in the general economic pressures and higher interest rates had slowed its reservations down considerably.

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Despite expectations of some £350m of revenues for the year, it is expecting that the 2024 year will see a 10% easing.

The six months to end November 2022 reported an 85% rise in first-half revenues to £161.9m, while its adjusted pre-tax profit was 3% higher at £6.6m (£6.4m), leaving earnings 8% lower at 4.68p (5.09p) per share.

CEO Innes Smith stated that:

“This has been a challenging period for the housebuilding industry with significant headwinds having a combined effect, which largely offset the excellent growth that we achieved in private housing. The UK government’s mini-budget in September reduced the confidence of homebuyers and the cost of mortgages increased significantly.

We have taken decisive action in response to these conditions. We’ve paused entering new long-term affordable housing contracts and reduced our fixed cost base. We’ve made a strategic land sale on good terms; reduced land buying activity; and are approaching new site openings with caution. We are also encouraged by the signs that market conditions are improving.

While it is too early to call a recovery, the green shoots we are experiencing and which are being seen across the industry, through increased reservations and visitor levels, are encouraging.”

Analyst’s Opinion – Target Price of 129p

Analyst Greg Poulton, at the group’s brokers Singer Capital Markets, is impressed by the strong land bank and rates the shares as a Buy, looking for 129p against the current 88p.

His estimates for this year to end May are for £340.0m (£257.1m) revenues and £17.0m (£20.8m) adjusted pre-tax profits, with 11.3p (15.3p) earnings and paying a 3.00p (6.20p) dividend per share.

For the 2024 year his figures are £291.7m sales, £20.0m profits, 12.4p earnings and a 5.00p dividend.

Alastair Stewart at Progressive Equity Research is looking for £339.5m sales this year, similarly a £17.0m profit showing 11.4p earnings and a 3.10p dividend.

For the coming year he has pencilled in £291.0m revenues, £20.2m profits, 12.5p earnings and a 5.10p per share dividend.

He too respects Springfield’s land bank, giving it a platform for recovery as well as for short-term land sales.

Conclusion – Scotland’s only quoted housebuilder deserves a premium rating

This £104m group’s shares, at the current 88p, yield a very attractive 5.2%, while they trade on less than 7 times prospective earnings.

A rise back up over 110p could easily occur in 2023.

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