Tomorrow at 1pm, at Elgin in Morayshire, Springfield Properties (LON:SPR) a leading housebuilder in Scotland focused on delivering private and affordable housing, will be holding its AGM, it will be interesting to note whether the group published an AGM Trading Update.
It generally does not – but you never know a few tasty morsels may well be dropped from the Boardroom table.
Even so, I like the company, its massive land bank and its growth prospects, certainly enough to anticipate its shares rising over the next few months.
The Business
The group delivers quality energy-efficient homes across Scotland through six well-established and respected brands.
In the year to end-May, the group’s revenue fell 19.8% to £266.5m (£332.1m), while the adjusted pre-tax profits were 33.8% lower at £10.6m (£16.0m), generating earnings 37.6% lower at 6.36p (10.19p) per share.
Headline figures for that year showed some 878 completed homes, with 5,593 owned plots in its land bank, 88% of which had planning permissions.
CEO Innes Smith stated that:
"Against a challenging market backdrop, we successfully delivered our objectives for the year.
A key priority was reducing our debt, and we're very pleased that we have exceeded our target.
This was achieved through taking decisive action to reduce costs, manage working capital and secure profitable land sales of sites that do not impact on our near-term development pipeline.
We are now in a strong position to deliver future growth as more favourable economic and trading conditions return.
We are also encouraged by early indications for an improving backdrop.
Many of the key elements that underpin homebuyer confidence are strengthening, including decreasing inflation and the first Bank of England interest rate reduction in over four years.
While it remains early days, we are pleased we have started to see an improvement in private housing demand since year end - with reservation rates being ahead of the same time last year.
Similarly, having actively recommenced signing affordable contracts, contracted order book in affordable housing at year end was also ahead of where it was at the same point in the previous year.
We continue to have one of the largest owned land banks in Scotland, with a high proportion of sites having planning already in place.
We are particularly excited about the forthcoming investment in Scotland with the creation of the Inverness and Cromarty Firth Green Freeport and the development of Scottish & Southern Energy Networks' new powerlines to provide the UK with renewable energy, which will require the building of thousands of new homes.
We have worked across the North of Scotland for decades and are passionate about growth and development for the region.
With significant land holdings in Moray and the Highlands, we are uniquely placed to help deliver this opportunity as the housing market recovers.
As a result, we look to the future with increasing confidence and, accordingly, we are pleased to be able to return to making dividend payments earlier than initially anticipated.”
Looking to the future
In the latest Report & Accounts, Executive Chairman Sandy Adam stated that:
“Our actions to reduce our bank debt and overheads have put us in a position of strength going forward.
The profitable land sales achieved during the year demonstrate the value that can be realised from our land bank.
Housing demand in Scotland had been dampened by higher interest rates and this has led to lower completions.
However, the fundamentals of the housing market in Scotland remain very strong.
The undersupply of housing across all tenures has intensified and Scotland now faces a housing emergency that must be addressed.
Our return to the affordable housing market across the country will play a key part in this.
Fantastic opportunities for our business are beginning to, once again, present themselves, particularly in the North where we have a large land bank and are in a unique position to deliver against the unprecedented demand.
In addition, we have seen buyer confidence increase and the reservations received over the summer give us reasons to be optimistic.”
Broker’s Views
Analyst Greg Poulton at Singer Capital Markets rates the group’s shares as a Buy, looking for raised 160p (146p) as his Price Objective.
For the current year to end-May 2025, he estimates revenues of £273.2m (£266.5m), with adjusted pre-tax profits of £13.2m (£10.6m), earnings of 8.0p and paying a 1.5p dividend per share.
For the 2026 year he sees £283.0m revenue producing £16.5m profits, with earnings at 10.0p and a 2.50p dividend per share.
Analyst Alastair Stewart at Progressive Research believes that economic and political dynamics are likely to support growth in housebuilding volumes and prices in Scotland, where values have lagged most of the UK.
He considers that the Scottish market is underpinned by long-term growth prospects and a distinctive home-buying model.
For this year, he has £271.6m sales, £13.1m profits, 8.1p earnings and a 1.50p dividend.
The 2026 year, Stewart has £286.2m revenue, £17.0m profit, 10.4p of earnings and a dividend of 2.50p.
James Tetley and Rachel Hayes, analysts at Equity Development, have a ‘fair value’ of 140p on the group’s shares.
For 2025 they have £270.0m sales, £13.0m profits, 8.0p earnings and a 1.5p dividend.
The 2026 year, they forecast, could see £290.1m turnover, £16.5m of adjusted pre-tax profits, 10.0p earnings and a 2.5p dividend.
They consider that the shares are trading at some 30% below its peers in terms of valuation, and that it does reflect the group’s growth prospects nor its unique positioning.
My View
In the last year this group’s shares have traded up to 112p but are now only 96p.
At this level, considering the above analysts’ estimates, the shares offer a very appealing medium-term growth prospect, with such a geographically unique land bank the company is clearly undervalued.
I remain totally confident that my 120p Target Price will be achieved.
(Profile 05.03.19 @ 114p set no Target Price)
(Profile 26.10.22 @ 92p set a Target Price of 120p)
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