Telford Homes plc (LON:TEF) saw its shares rise on Wednesday as the London-focused buy-to-rent (BTR) residential property developer reported in-line interim results, although brokers still trimmed their estimates and target prices for the group to reflect a slowing London market.
For the six months ended 30 September 2018, the AIM-listed firm reported a 16.1% increase in pre-tax profit to £10.1mln, up from £8.7mln a year earlier, as total revenue rose by 31% to £129.6mln, up from £99.3mln.
Jon Di-Stefano, the company’s chief executive commented: "Telford Homes made pleasing progress during the first half of the financial year, despite an increasingly uncertain economic and political backdrop. Our strategic shift towards purpose-built rental homes sold to institutional investors continues to be beneficial to our risk profile and growth potential whilst also being well timed in terms of the changing requirements of our typical customers in London.”
The firm increased its interim dividend by 6.3% to 8.5p per share, up from 8.0p a year earlier.
But forecasts, targets reduced
In a note to clients, analysts at City broker Peel Hunt said Telford Homes’ interims were in line with their expectations.
They noted that the group has continued to make sales since its trading update in October, though the current political backdrop is weighing on demand from domestic and overseas investor buyers and that for units over £600,000.
The analysts pointed out that Telford Homes has secured sales to meet over £40mln of pre-tax profits, although to meet its target of £50mln the sale of around 60 further units, including around 20 priced over £600,000 is required.
The Peel Hunt analysts said they have reduced their profit forecasts for the firm “to reflect the risk of securing a proportion of these units particularly those at higher price points.”
For full-year 2019, they have reduced their pre-tax profit forecast by 8% to £46mln, in line with the previous year, and cuts their full-year 2020 forecast by 8% to £48mln.
As a result, they also cut their price target for Telford Homes to 430p from 510p but maintained a ‘buy’ recommendation on the stock.
The Peel Hunt analysts concluded: “The shares trade on a CY18 P/NAV of just 1.0x, the lowest in the sector and does not reflect the continued move into BTR which de-risks the development pipeline.”
Meanwhile, analysts at ‘house broker’ ShoreCapital reduced their fair value for Telford Homes’ shares to 445p from 508p but said the shares “are looking under-valued.”
More cautious line on open market sales
ShoreCapital’s analysts said they now expect Telford Homes current year pre-tax profit to be around £4.5mln lower than previously forecast at £45.5mln, although most of this may roll over into full-year 2020.
“However,” they added, “as we are also taking a more cautious line of open market sales looking forward, even with this rolled over PBT, we are lowering next year’s PBT by £2.5mln”.
In late morning trading, shares in Telford Homes were 3.3% higher at 309.50p.