Savills plc (LON:SVS) reported a slight increase in 2016 profit as the US election and Brexit caused volatility in transaction activity in the real estate company’s markets.
The group’s statutory profit before tax rose 1.0% to £99.8mln in the year to 31 December 2016, compared to £98.6mln the previous year.
Savills said while investors enjoyed low interest rates last year, they experienced a number of headwinds, including rises in property taxes. They also saw a number of geopolitical changes including the UK’s vote to leave the European Union last June and Donald Trump’s US presidential victory in November.
“Under these circumstances it was understandable that Savills saw an increase in the volatility of transactional activity in many of our markets,” the company said.
Still, a weaker pound against most major currencies following the Brexit vote attracted foreign investors to the UK during the latter half of 2016. The slump in sterling also contributed £9.0mln to underlying profits, given the company’s international presence. Underlying profit rose 12% to £135.8mln from £121.4mln.
However, Savills said it was cautious on the outlook as the government prepares to trigger Article 50 on 29 March, which will begin the UK’s formal exit from the European Union.
Revenue rose 13% to £1.5bn from £1.3bn, supported by its Frankfurt commercial asset management firm SEB Asset Management AG, acquired in August 2015. The group said strong growth in Asia Pacific and Continental Europe offset flat trading in the UK and US.
Savills increased total dividends for the year by 12% to 29.0p from 26.0p, including a total ordinary dividend of 14.5 and a supplementary dividend of 14.5p.
“We entered 2017 with a continuation of global macro-economic concerns, rising bond yields, uncertainty over the impact of Brexit negotiations in the UK and Continental Europe and a new administration in the US,” said chief executive Jeremy Helsby.
“Savills is a strong and diverse global firm and we continue to look at opportunities to develop our business. We have started the year well and our expectations for the full year remain unchanged."
Shares fell 2.32% to 864.0p in morning trading.
What analysts think...
UBS has placed its rating and target price under review, citing the company's cautious stance. However, it said any potential weakness in the UK after Article 50 is invoked could be offset by gains in the US as deals come through and further market share gains in continental Europe.
Nicholas Hyett, equity analyst at Hargreaves Lansdown, said Savills has delivered growth despite political headwinds in the UK and US. Hyett noted that activity in the US should pick up this year as investors in the commercial property market pick up investment decisions that were delayed in the run up to the presidential election.
"That’s certainly welcome, but the health of the UK market, which still accounts for 53% of profits, remains hugely important," he said. "UK operations have proven surprisingly resilient so far, thanks to foreign investors picking up a bargain in Savills’ core London market as a result of sterling’s weakness. However, looming Brexit negotiations mean that the longer run remains uncertain.”
Peel Hunt reitered an 'add' rating, saying the full year results were were comfortably ahead of its expectations.
"Despite tougher transaction markets in many areas in 2016 the group managed to expand profits in this area as well as seeing strong growth in its Investment Management business," Peel Hunt said in a note.
"The group has indicated that 2017 has started well which probably means there is at least a 7-8% upgrade to put through if not more."
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