I have really liked this company for some years, just like the whole housebuilding sector it has done well and then as a result of political actions.
The company, which is one of the leading private and affordable housing developers in Scotland, will next Tuesday be reporting its Final Results for the year to end-May.
We already have guidance that market conditions were challenging in the period with subdued homebuyer confidence and reduced affordable housing activity.
However, in the year, it did handle a number of site disposals, which aided its working capital, while reducing its bank debt by £21.8m to £40.0m.
And it did that without impacting its near-term development pipeline.
In its early July Trading Update the group’s CEO Innes Smith stated that:
"A key priority for the year was reducing our debt, and we're pleased that we have exceeded our target.
This was achieved through securing profitable land sales, which, alongside continued cost control, has enabled us to deliver better-than-expected profit.
While the challenging market conditions impacted revenue for the year and our private housing forward order book, we are cautiously optimistic about the year ahead.
Many fundamentals that underpin homebuyer confidence are set to strengthen, including a new UK government, decreasing inflation and an anticipated interest rate reduction.
Alongside this, we remain on track to deliver strong growth in FY 2025 in affordable housing, offsetting the expected small decline in our private sales.
Looking forward, we trust that the Scottish Government will take action to address Scotland's housing emergency, which must include the removal of the rent cap barriers to attract PRS investment north of the border.
With one of the largest land banks in Scotland, and with a high proportion of sites already having planning in place, we are well-positioned to benefit from any resumption in PRS activity, which would represent an upside to our forecasts.
In addition, thanks to our land holdings in the Highlands, we are set to benefit from the expected sharp increase in housing demand around the Inverness and Cromarty Firth Green Freeport.
Accordingly, while the market currently remains subdued, we are trading in line with our expectations and are encouraged by the signs for optimism.
In addition, with the strengthening of our balance sheet, we are well-positioned to be able to capitalise on the pent-up demand for high-quality, energy efficient housing as market conditions improve."
At Equity Development its analysts James Tetley and Hannah Crowe have a 140p fair value on the group’s shares.
They estimate that 2024 will have seen £266.0m (£332.1m) sales, adjusted pre-tax profits of £10.4m (£16.0m), with earnings of 6.6p (10.4p) per share.
For the current year they see £268.7m revenues, £13.0m profits, 8.0p earnings and a 1.5p dividend per share.
Alastair Stewart at Progressive Research has very similar estimates for 2024 and 2025, while noting that with one of the largest land banks in Scotland, amid a sharply increased appetite across the industry for sites in recent months, the group is well-positioned to be able to capitalise on the pent-up demand for high quality, energy efficient housing as market conditions improve.
Analyst Greg Poulton at Singer Capital Markets rates the shares as a Buy, with his estimates broadly in line with the other analysts, and has recently raised his Price Objective from 137p to 146p a share, stating that:
“Springfield offers growth potential over and above the more established housebuilders.
Despite this, it trades at a substantial discount to NAV, the peer group and its long-term average multiples.
We believe value is evident.”
Currently trading at around the 106p level I continue to rate highly this company, its assets and its prospects.
A confident Hold awaiting confirmation that the current year is showing good recovery.
(Profile 05.03.19 @ 114p set no Target Price)
(Profile 26.10.22 @ 92p set a Target Price of 120p)
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