The UK property market has been surprisingly robust given Brexit worries and Countryside Properties (LSE: CSP) has seen its share price climb almost 7% this morning after reporting a 43% rise in total completions.
Construction time
The FTSE 250 home builder and urban regeneration partner’s update for the six months to 31 March shows it remains on track to meet full-year expectations. Completions should total 2,362 homes, a strong figure even though the average selling price dropped 4% to £377,000. This was largely due to an increased contribution from its regional businesses, where prices are lower than in London and the South East.
Countryside also boasts a strong total forward order book, up a whacking 49% to £1.037bn. The net reservation rate is at the top end of its target range at 0.86, down only slightly from 0.87 last year. Net debt has risen to £42.1m, against net cash of £13.7m last year, but that was better than expectations and doesn’t appear to bother investors.
Spring time
Countryside has been successful in winning new business and after a slower start to the year, Q2 customer demand has held up well. Group CEO Ian Sutcliffe says that despite the wider political and macroeconomic uncertainty, demand for mixed-tenure homes remains strong and the group has enjoyed “a robust spring selling season” and enjoys “excellent visibility of future work”. It remains confident of delivering its medium-term growth plans.
The £1.52bn company trades around 12% lower than a year ago, as wider uncertainties hit housebuilding stocks generally, and is now at a tempting valuation of just 8.1 times forecast earnings, with a PEG of just 0.6.
Decision time
The forecast dividend yield is 3.8%, with very healthy cover of 3.3%. Recent years’ earnings per share (EPS) growth has been pretty astounding, at 196%, 70% and 30%, although the next couple of years look steadier at 12% each. Rupert Hargreaves presciently picked it out as one of his three top growth stocks for April.
My question is whether you could do better with a sector peer. You can certainly get higher income elsewhere. For example, Persimmon (LSE: PSN) currently has a forecast yield of 10%. However, as fellow Fool Kevin Godbold points out, the company’s yield is a special case, and may be more susceptible to future profit swings than other company payouts.
Capital move
Persimmon has relatively little London exposure, which is working out well as the capital’s market slows. This FTSE 100 stock is a bigger beast than Countryside with a market cap of £7.5bn but is also available at a bargain valuation, in this case just 7.6 times earnings.
However, its growth trajectory appears to be slowing. After five years of healthy double-digit EPS increases, the company’s earnings are expected to be flat in 2019, and rise just 1% the year after. Also, it still hasn’t shaken off the controversy over former chief executive Jeff Fairburn’s mind-boggling bonus payments.
Interestingly, broker Jefferies recently examined the housebuilding sector and named Countryside its number one buy, while labelling Persimmon a hold. The property market is slipping but demand remains steady given support from Help to Buy and the average residential mortgage rate being a record low 2.6%, according to Ludlow Thompson.
Today’s high yields and low valuations make the sector hard to resist, for those who accept the risks.
