Telford Homes

www.telfordhomes-ir.london/ TICKER: TEF     EXCHANGE: AIM

Telford Homes specialises in planning, designing and building developments on brownfield sites in London.

LATEST REPORTS

 
Blow-out 2nd half with more to come
Published: May 30 2018

One of the benefits of a public listing is that it provides a vital source of capital for businesses like Telford Homes. Indeed, since Jan’12 it has raised £70m in 2 tranches (£50m Oct’15 & £20m Jun’13) to develop thousands of desperately needed, high quality, affordable properties within inner London. In return, shareholders have seen PBT climb from £3.0m in FY12 to £46.0m today, and been rewarded with a 475% appreciation in the stock from 79p to 460p. Which, when added to 75p of dividends, equates to an average annualised gain of 34% pa. 
However, there was always going to be a time when growth would moderate. Don’t get me wrong, we’re not envisaging a contraction. Simply a 2-3 year “consolidation” phase, whereby EPS increases at a more realistic rate. Namely +10.4% to 55p in FY19 (vs 49.8p), and thereafter by single digits. Before forging ahead once again from FY22, as Build-To-Rent (BTR) becomes a bigger slice, and margins revert back to through-cycle norms. 
What were the key messages from this morning’s record FY18 results? Well, after a blow-out H2’18 - where PBT came in at £37.3m (H1 £8.7m) on revenues up 15.6% YoY to £216.9m (£99.3m) - management reiterated their confidence in achieving FY19 PBT of £50m+, implying a return on equity (RoE) of >15%. FY18 PBT at £46.0m (up 34.9% on LY) was slightly above consensus vs our estimates of £44.6m. Driven by 3.3% higher EBIT margins (adjusting for capitalised interest) to 16.7%, thanks to favourable sales mix, lower than anticipated build costs and 8.3% top line growth to £316.2m.
Telford has suffered a few planning delays of late - albeit we think the medium to long fundamentals of the capital’s housing market is supportive. London continues to build nowhere near enough homes to satisfy demand. In fact, according to the latest government data (source: MHCLG), annualised housing starts in the 32 London boroughs were ~17,000 units in FY17, compared to an average population growth of 85k pa between Mar’97-Mar’16, to 8.7m
More people are looking to rent - not just because of the elevated prices, but also increasingly through choice. Which is one of the reasons why BTR is such a neat solution. Offering quality facilities/service, security and in some cases extended leases to tenants, together with more communal/friendly environments.
Bearing all this in mind, we nudge up our valuation from 500p to 535p/share, based on the FY18 out-turn, and belief that Telford should be valued at least in line with its peers, who presently sit on ‘price : net tangible assets’ and PE multiples of 1.8x and 10.1x respectively.
 
Record results with PBT over 30% up on last year
Published: Apr 18 2018

Founded in 2000, Telford Homes specialises in planning, designing and building developments on brownfield sites in inner London where demand for new homes far exceeds supply. Here it constructs high quality apartments and flats, sprinkled with a few houses and the odd commercial property (eg school), reflecting the mixed-use nature of its sites.
Today the firm released another positive trading update, saying that results for the y/e March 2018, would not only be at “record” levels, but also adjusted PBT would come in >30% above LY (£34.1m) and “slightly ahead of expectations”. Accordingly we have nudged up our FY18 PBT forecast from £44.0m to £44.6m on LFL revenues 8% higher to £315m (vs £292m LY).
The profit improvement has been driven by 3% higher margins thanks to sales mix and build cost savings, alongside volume growth. The latter mirroring the ongoing shortage of reasonably priced accommodation (typically <£600k each), coupled with “robust” demand from overseas/UK Buy To Let (BTL) investors, owner-occupiers & housing associations. In our opinion this secular imbalance is unlikely to subside anytime soon. Indeed in January >100 reservations were secured in only 3 weeks at the firm’s New Garden Quarter development in Stratford.
All of this indicates to us (and independently correlated by Berkeley Homes) that the more affordable end of the Capital’s residential property market is still in decent shape, regardless of the constant media scaremongering. To their credit, the Board anticipated this shift a while back, buying land early and so being able to launch Bow Garden Square (E3, 109 units) in late March - primarily focused on owner-occupiers with prices starting at £390k.
What’s more, from a macro perspective London’s demographics are supportive of the long term investment case. Between Mar’97-Mar’16, the population rose by 1.7m (+24%) to 8.7m (see below), and is predicted to climb to 10.1m by 2035. And having spoken recently to other builders, we are becoming even more optimistic on Build-To-Rent. In 2017 this fledgling asset class attracted £2.4bn (+21%) of fresh capital, but is set to mushroom another 18-19% pa on average over the next 6 years
Factoring all of this in our forecasts for FY19 and beyond remain broadly unchanged. We believe Telford Homes should at least be valued in line with other UK developers, who presently sit on ‘price:net tangible asset’ and PE multiples of 1.7x and 9.7x respectively. Today’s RNS should help quell fears over the health at the more affordable end of the London property market and in turn hopefully trigger a re-rating in TEF’s stock, to bring it closer towards our 500p/share valuation.
 
Management interview on results and prospects
Published: Dec 07 2017

Jon Di-Stefano, CEO and Katie Rogers, Group FD, discuss the group's recent results announcement and expectations going forward.
 
A top quality stock I should never have sold
Published: Nov 29 2017

Back in 2012, I stupidly sold shares in Telford Homes - a specialist builder of affordable homes in ‘non-prime’ London boroughs. Happy enough at the time to pocket a >100% gain, only then to watch the price triple over the next 3 years!  I should have concentrated on the Capital’s excellent fundamentals. Namely a chronic lack of affordable housing, augmented by robust demand from UK/overseas buy-to-let (BTL) investors, and more recently ‘Build to Rent’ (B2R) institutions – all desperately seeking income as bond/gilts yields remain locked at near record lows. 
To us, the fundamentals are definitely positive: something not lost either on the Board, who last year kicked off a major strategic initiative of controlled expansion. They are taking advantage of cheap bank lending to reinvest in growth, especially within the buoyant B2R sector. All told, aiming to more than double revenues and net tangible assets (NTA) per share over the next 5-6 years.
Moreover, this expansion is to be achieved using comfortable levels of gearing, and without becoming overly dependent on any single customer type. Indeed allied to ongoing stable demand from individuals, we estimate that ultimately >50% Telford’s turnover will be come from Institutions and Housing Associations  – who generally have longer term time-horizons and are less affected by temporary lulls in the economic cycle. 
But that’s not all. Given the £580m forward sales position, the company has extensive visibility, with this morning’s interims coming in almost exactly as per our forecasts, and in line with what the management indicated at the trading statement on 11th October. Importantly too, the firm said it was on track to exceed FY18 PBT of £40m, and £50m for FY19 - having already bagged orders worth >95% of this year’s gross profit (vs 80% at prelims) and >65% of next’s (60%). The total development pipeline  is worth £1.4bn (£1.5bn March) – equivalent to nearly 4,200 units, of which 3,000 have planning consent.
As a sign of the Board’s confidence the dividend was hiked 11% to 8p/share, and is predicted to reach 17p by the y/e - implying a 4.3% yield and a 36% pay-out ratio, which in turn should normalise at around 1/3rd in future periods. Bearing all this in mind, we have broadly held our PBT forecasts for this year and next at £44.0m (vs £43.5m before) and £51.9m (£52.4m) respectively.
We think Telford shares should trade on a rating not too dis-similar with its UK peers, rather than on today’s skinny ‘price:net tangible asset’ and PE multiples of 1.3x and 8.5x. Consequently, our analysis implies that the stock is worth 500p/share, when using a range of benchmarks and discounting back at 10%.
NB we shall be interviewing Telford Homes’ Management next Wednesday, Dec 6th. If you have any questions to raise with them, please send them to [email protected]
    
 
Visibility underpins forecasts
Published: Oct 13 2017

Telford Homes is a residential developer operating across London and this week’s trading update is a timely reminder that house building can’t always fall into neat six months tranches.  Is also serves to remind us that demand for affordable housing in the London market remains strong and, combined with build to rent, provides excellent visibility through its strong forward order book, supported by a robust balance sheet.
The group entered the current financial year with a very strong forward sales position. The timing of development completions is going exactly to plan with a significantly skewed H2 sales and profits weighting. The company remains on track to meet our £43.5m PBT forecast for the full year. To demonstrate confidence in its ability to meet market forecasts the dividend in H1 will be equal to that of H2. 
Telford Homes continues to increase its exposure to the attractive build to rent sector. When combined with the strong forward sales position at the start of the year, it has been well insulated from any declines in activity in the London market in general. Furthermore the company starts H2 with a considerable forward order book (of £580m). This equates to over 70% of cumulative two years’ forecast sales. In our opinion a good level of forward visibility should equate to a higher than average rating.
Yet the stock trades at a 9% discount to the Housebuilding sector (on a PER of just 8.7x) despite the attractive growth prospects and de-risked forward sales model. On a Price/Net Asset Value (PNAV) it trades at 1.30x in 2018, falling to 1.16x in 2019, a 25% discount to the sector. Our 17.0p forecast dividend in 2018E equates to an attractive 4.3% dividend yield, rising to 4.8% in 2019E.
 
Final Results Webinar June 2017
Published: Jun 16 2017

You can now hear Jon Di-Stefano, Chief Executive, and Katie Rogers, Group Financial Director, present the final results for the year to 31 March 2017 on behalf of Telford Homes. 
To view simply click on the video below. 
 
Making capital in London
Published: May 31 2017

Telford Homes has published another positive set of full year results with record revenues and profits. The company has a large development pipeline, it enjoys excellent visibility through its forward order book and the balance sheet is robust. We expect continued growth over the next three years.
Record results with a very strong H2
PBT came in ahead of original market expectations at £34.1m, up 6% YOY following a very strong performance in H2. This translated to EPS of 36.8p and the total DPS for the year is 15.7p. 
Recent transactions look attractive
Over the past six months the company announced two major buy to rent sales, at The Forge, E6 (to M&G) and New Garden Quarter, E15 (to Folio London), generating over £100m of revenues. It also announced the acquisition of the LEB Building, E2, and it exchanged contracts on a large scheme at Stone Studio, Hackney Wick (E9).
Strong forward sales 
Forward sales remain strong and the company will start the year with a considerable forward order book of £548m. This equates to over 65% of cumulative two years forecast sales. In our opinion a good level of forward visibility should equate to a higher than average rating. The company says it expects to exceed £40m PBT in 2018 and £50m PBT in 2019 and profit visibility is high with over 80% anticipated 2018 gross profit already secured, and over 60% for 2019.

Valuation still looks appealing
The stock trades at a 5% discount to the Housebuilding sector (on a PER of 9.1x) despite the attractive growth prospects and de-risked forward sales model. At current levels it also offers a dividend yield of 3.7%. On a Price/Net Asset Value (PNAV) ratio, it trades on 1.42x in 2018, falling to 1.26x in 2019, a 28% discount to the sector.
Attractive dividend yield
With the shares trading at 430p our 17.0p forecast DPS in 2018E equates to an attractive 4.0% dividend yield, rising to 4.4% in 2019E.

Management webinar
If you would like to hear the management present their full year results join us on the 15th June at 3pm by registering here: 
https://www.equitydevelopment.co.uk/2017/05/17/telford-homes-results-webinar-thursday-15th-june-3-00pm/

ARCHIVE

2017
Ahead of market expectations - Again!
Published: Apr 06 2017

Telford Homes is a residential developer operating across London and  has just published a positive full year trading update (FY to 31 March 2017). The company continues to trade well and will report record revenues and profits when it announces results in late May, with PBT ahead of market expectations.
Over the past six months the company has announced a further two major build to rent sales, at The Forge, E6 (to M&G) and New Garden Quarter, E15 (Folio London, a subsidiary of its JV partner), generating over £100m of sales combined. It has also announced a significant acquisition of the LEB Building, E2 for £30.2m in February.
Looking forward, the company says that it expects to exceed £40m PBT in FY 2018 and £50m PBT in FY 2019. Visibility is high with over 80% of anticipated gross profit for FY 2018 already secured, and over 60% secured for 2019. Total forward sales remain strong and the company will start the year with a considerable forward order book of c. £550m
The stock is only trading in line with the Housebuilding sector (on a PER of 10.3x) despite the attractive growth prospects and de-risked forward sales model. It also has a dividend yield of 3.9% rising to 4.3%. We would argue that the stock offers good value, particularly as build to rent sales could accelerate revenue recognition and offer potential upgrades later in the year.
2016
Telford Homes Plc - Equity Development Investor Forum, November 2016
Published: Dec 02 2016

Jon Di-Stefano, Chief Executive, discusses how Telford can take advantage of the London property market. 
Strong H2 expected
Published: Nov 30 2016

Telford Homes specialises in planning, designing and building developments on brownfield sites in London. The company is a hands-on developer with in-house construction expertise. It builds apartments and houses in the main, but also builds commercial property, schools, churches etc. It has a strong balance sheet, a large development pipeline and impressive forward sales position, as well as good levels of demand for its product and geography from a diverse group of buyers
H1 results were in line with expectations with PBT of £9.0m, EPS of 9.9p and DPS of 7.2p. The NAV / share is 253p. We expect the company to have a strong H2 based on its forward sales position and the timing of developments coming through, but make no change to forecasts at this stage.
The company has a forward sales position in excess of £700m forward order book and this equates to over 60% of cumulative three years forecast sales. This is the highest level of forward sales in the sector (relative) and in our opinion a good level of forward visibility should equate to a higher than average rating.
The development pipeline is £1.42bn compared to £0.6bn three years ago. With the successful £50m fundraising in 2015 and £125m headroom on its banking facilities it has the financial firepower to expand this pipeline further and there remains a number of opportunities in its locations.
Telford shares are on a current year PE of 8.7x, falling rapidly to 6.6x in the year to March ’18, and again to just 5.4x the following year. From a PNAV perspective it trades on 1.15x in 2017, falling to 1.04x in 2018, a 34%x discount to the sector average. Our 35.9p EPS forecast gives rise to a DPS of 15.7p. With the shares trading at 313p this equates to an attractive 5.0% dividend yield rising to 5.2% in 2018E.
In today’s release the CEO states ‘Telford Homes is in a very strong position ’ and the Board ‘is confident in the outlook, both short and long term.’
Safe as houses
Published: Oct 17 2016

Telford Homes specialises in planning, designing and building developments on brownfield sites in London. The company is a hands on developer with in-house construction expertise. It builds apartments and houses in the main, but the nature of mixed-use inner city development means it also builds commercial property, schools, churches etc.
We think the company is in as strong a position as it has ever been in the 15 years since flotation. The company has a strong balance sheet, with an expanded equity base and significant headroom on its banking facilities, a large development pipeline and impressive forward sales position, and good levels of demand for its product and geography from a diverse group of buyers.
London has an international reputation as a growing, vibrant and important economy, with an excellent transport network and a stable and attractive property market. Its population is large and is expanding but there is a chronic shortage of new homes being built in an already undersupplied city.
The company has a £650m forward order book and this equates to over 60% of cumulative three years sales. This is the highest level of forward sales in the sector (relative) and in our opinion, we are at a stage in the cycle where a good level of forward visibility should equate to a higher than average PE/PNAV valuation.
Telford Homes is on a current year (12 months to March’17) P/E of 8.3x, falling rapidly to 6.3x in the year to March ’18, and again to just 5.2x the following year. From a Price/NAV perspective it trades on 1.15x (calendarised 2016), falling to 1.06x in 2017, a 28% discount to the sector average. Our forecast assumes 2.3x dividend cover this year rising to 2.9x in 2018E. Therefore our EPS forecast of 35.9p gives rise to a DPS of 15.7p. With the shares trading at 295p this equates to an attractive 5.3% dividend yield rising further to 5.5% in 2018.

We base our target price at 1.0x 2019E PNAV discounted back to present value, add the present value of future dividends, and apply a 10% premium to reflect the Group’s distinct operational and balance sheet strengths. That generates a target price of 383p / share.