Watkin Jones

http://www.watkinjonesplc.com/ TICKER: WJG     EXCHANGE: AIM

Watkin Jones provides an end-to-end solution in developing large scale, multi occupancy accommodation projects, with a primary focus on the student accommodation market.

LATEST REPORTS

 
Full house of property deals
Published: Oct 04 2019

Quality businesses have many attractions. Not least the ability to expand profitably, even during choppy seas such as today. Enter Watkin Jones, a leading UK developer & manager of large scale, multi occupancy accommodation, focusing on purpose built student accommodation (PBSA) and residential build to rent (BtR).
Yesterday the company announced a slew of property deals and pipeline updates, involving 2,532 PBSA beds, 431 BtR units and 88 residential appts. Here UK demand for new build rental properties remains robust, reflecting a chronic under supply, high employment, increasing real wages and elevated house prices.
What’s more, institutional capital continues to flood into these two sectors, thanks to the sustainable, inflation beating returns - particularly when compared to the >$15 trillion of negative yielding sovereign / investment grade debt.
At 221p, the stock trades at a modest 13.8x PER (or 11.9x ex cash), whilst paying a healthy 3.6% dividend yield. Elsewhere, the firm remains on track to hit our adjusted FY19 PBT and EPS estimates of £51.0m and 16p respectively on revenues of £390m, closing Sept’19 with net cash of £90.4m (worth 35.4p/share). Likewise we make no change to the 250p/share SOTP valuation.
 
On track & underpinned by strong momentum
Published: Jul 29 2019

For centuries, home ownership has proved to be reliable path to riches. However nowadays, due to elevated prices and an acute lack of supply, this is a dream for many, especially those trying to initially get on the property ladder.
Not surprisingly therefore, more and more people are turning to the buoyant Build-to-Rent sector, which real-estate adviser Savills expects to ultimately be worth £543.6bn, equivalent to 1.749m apartments compared to 30.4k today (£9.6bn).
What’s more this isn’t simply down to affordability either. People and even cash-strapped students prefer large-scale purpose-built accommodation - providing security, convenience, communal spaces and quality of life vs dingy old digs. 
Watkins Jones benefits from both of this secular trends. Today announcing 6 deals, to build 1,074 new PBSA beds and 370 BtR units over the next 3 years. Thus providing investors with not only multi-year visibility and downside resilience - but also at an attractive entry point, with the shares trading on a modest 13x PER, whilst paying a 3.9% dividend yield. We make no change to our forecasts or 250p/share valuation.
CEO Richard Simpson concluding: “We continue to see positive momentum across all key areas of the business. Our 6 PBSA schemes for delivery in FY19 are on track for completion ahead of the 2019/20 academic year and we continue to see an encouraging pipeline of potential future sites across the UK. The sectors in which we operate are highly attractive to investors and we continue to make solid progress against our internal targets." 
 
Interim Results Interview with CEO and FD - May 2019
Published: May 23 2019

Richard Simpson, CEO, and Phil Byrom, Financial Director, discuss the group's interim results, the ongoing strength in their student accommodation division, and the opportunities in Build to Rent.  
 
Upbeat H1 & in line with FY19 estimates
Published: May 21 2019

There aren’t too many safe haven UK stocks that can claim to have largely escaped the Brexit bearhug. However we think Watkin Jones, a leading developer/manager of large scale, multi occupancy accommodation, is just such one.
This morning the company reported H1’19 results that were ‘in line’ with FY19 expectations, alongside lifting the interim dividend 11.3% to 2.75p (2.47p).  Here gross margins climbed 1.9% to 23.7% on sales up 0.5% to £159.1m, reflecting improved mix (re more premium PBSA sites), augmented by higher contributions from BtR and residential housebuilding. 
Likewise adjusted PBT rose 10.0% to £26.0m (£23.6m LY) and EPS +7.7% to 8.11p (7.53p LY) - with net cash closing Mar’19 at a comfortable £18.3m (vs £38.4m LY). The latter decline being simply a function of planned investment, BtR/PBSA WIP and the temporary impact a delayed £14m customer payment (now collected), which slipped over the period end.
Going forward, we make no change to our numbers – ED FY19 turnover, EBIT and EPS estimates of £390m, £51.7m and 16.0p respectively - and reiterate the 250p/share SOTP valuation. At 229p, the stock offers an earnings yield of 8.2% (ex cash), which is set to expand in the high single or low double digits for the foreseeable future on the back of predictable revenues and profits. Meaning that in our view, WJG continues to trade at a deserved premium to peers in light of its superior cash generation, asset efficiency, sales visibility and risk profile.
CEO Richard Simpson adding “I continue to be very excited by the opportunities in this business, seeing the market dynamics for both PBSA and BtR so strongly supportive of the Group’s forward sale model. Together with our pipeline of forward sold and secured development sites, this will continue to provide excellent visibility on future earnings and cash flow. Consequently, the Board remains confident in the prospects for the Group.”
 
Top of the Props
Published: Apr 04 2019

Looking at expected ungeared ROIs, Watkin Jones, a UK developer / manager of large scale, multi occupancy accommodation – ranks as the best ‘money making machine’ out of the entire UK property universe. Derived from sustainable secular tailwinds (eg student & Build-to-Rent), a forward funded model, high asset turns, low cost base and leading industry expertise.
Encouragingly, this morning the company said that trading for the 6 months ending March 2019 was “good” and importantly “in line with its expectations”. In fact, it was pleasing to hear that not only was WJG’s bread-and-butter PBSA (>70% of gross profits) powering along at a fair rate of knots - sporting a “secure development pipeline of >7,500 beds across 17 sites” (worth circa £650m). But also the group’s new growth engines of BTR, property management and (to a lesser extent) house building were making great strides too. 
Additionally from a macro perspective, yields of late on WJG’s core asset classes have become more attractive (see below) to investors vs traditional ‘safe havens’ like government bonds (eg German bunds & JGBs at 0%). Where several central banks have walked back their previous ‘relatively hawkish’ stances on interest rates and quantitative tightening. 
Picking through today’s numbers in more detail - of the 17 PBSA schemes, 11 (5,334 beds) have been forward sold, with all 6 slated for completion in FY19 (2,723 beds) being on track for the start of the 2019/20 academic year. Elsewhere, institutional investors continue to descend on the nascent yet “burgeoning” BTR market. 
Consequently we make no change to our forecasts, but lift the SOTP valuation to 250p/share (from 240p) based on the natural roll-forward of the discount rate and de-risking of the FY19 numbers. In our opinion, WJG continues to trade at a deserved premium to peers in light of its superior cash generation, asset efficiency, sales visibility and risk profile. 
 
full year results interview with Management
Published: Jan 21 2019

Following Watkin Jones' FY2019 results, new CEO Richard Simpson discusses the macro picture for both student accommodation and Build-to-Rent. Group Finance Director Phil Byrom  outlines the strong on-going appetite from institutional investors for these investment classes.

 
'The Mozart' of the property world
Published: Jan 15 2019

Buying the best rarely comes cheap - albeit occasionally, the market offers up quality stocks at compelling prices. Enter Watkin Jones, a UK developer & manager of large, multi-occupancy accommodation - mostly student bedrooms (PBSA) and/or apartments for young professionals (BTR) – trading on a modest 13.2x FY19 PER and paying an inflation busting 3.8% yield.
This morning the company uncorked another virtuoso set of results, with FY18 turnover (£363.1m up +20.3% vs LY), PBT (£50.1m, +15.7%), EPS (16.0p, +13.8%), dividends (7.6p +15.2%, 6.6p) and net cash (£80.2m +95.5%, worth 31p/share) all coming in ahead of our forecasts. Primarily thanks to a standout performance from PBSA - £60.7m gross profit (equivalent to 84% group) on sales of £321.7m (margin 20.0% vs 21.0% LY), where 10 developments were completed covering 3,415 beds (3,314 LY) - ably supported by composed displays from the other 3 smaller divisions.
YTD’19 trading is shaping up to be another record too, on the back of healthy growth/returns from PBSA & BTR vs most other fixed income assets. Sweet music indeed, especially for liability orientated investors (eg pension funds). In fact, only last week bell-weather student property landlord Unite, said that the Dec’18 values of its UK and London portfolios had jumped 5.0% and 8.4% respectively YoY, augmented by estimated 2019 rental yields of 3.0%-3.5%. Not bad, considering overall UK property returns are predicted to be 1.9% in 2019 and c.2.9% pa over the next 5 years (source: CBRE).
Shareholders should not forget that WJG’s generates best-in-class asset turns (2.4x vs sector 1.4x) and RoE (23.8% vs 17.3%), mirroring its successful forward funded model. At 213p, the stock trades on FY19 PE & EV/EBIT multiples of 13.2x and 9.0x, along with offering a 3.8% dividend yield . In our view, a deserved premium to peers in light of its superior cash generation, asset efficiency, sales visibility and risk profile. 
The new CEO 'remains confident in the outlook for the Group' and on a sum-of-the-parts basis we raise our valuation of the shares to a comfortable 240p.

ARCHIVE

2018
Another cracking year
Published: Oct 31 2018

Watkin Jones, a tier 1 developer/manager of purpose built student accommodation (PBSA) and build to rent (BTR) properties, this morning announced it had finished 10 PBSA (10 LY) developments covering 3,415 beds (3,314 LY) during FY18. Delivering record results which were “slightly ahead of expectations” (New ED Adj PBT £48m vs £46m before, & up +15% on LY £41.8m). 
First & foremost the fundamentals remains “strong”. This is characterised by strong occupier demand for quality, yet affordable, University & rented accommodation – all forward funded from a host of premier development partners.
With regards to the numbers, we make no change to our FY19 forecasts, but nudge up the valuation to 235p/share thanks to the stronger than expected progress. At 200p, the stock trades on FY19 PE & EV/EBIT multiples of 12.4x and 8.7x, along with offering a 4.0% dividend yield. In our view, a deserved premium to peers in light of its superior cash generation, asset efficiency, sales visibility and risk profile. 
£180m forward sale of 4 student sites
Published: Oct 02 2018

Watkin Jones provides the end-to-end development and management of large scale, multi occupancy accommodation, focusing on purpose built student accommodation (PBSA) and residential build to rent (BTR).
As further evidence of the health of the £4bn pa UK Purpose Built Student Accommodation (PBSA) market, Watkin Jones said yesterday morning that it had forward sold 4 schemes for £180m - covering 2,163 beds across Glasgow, Coventry & London (2x) – to a joint venture (JV) between KKR & Round Hill Capital. 
Furthermore, a 5th in Bristol has been provisionally exchanged, subject to planning consent, for which additional consideration would be received.
The £180m will be paid over the next 2 years, hence adding to the company’s strong revenue and earnings visibility, alongside its robust balance sheet. All told, we think this is encouraging news, and underlines not only the strength of the WJG brand, but also the build quality, project management and cost control of its developments.
Indeed, considering this is the JV’s 1st UK based PBSA transaction (albeit active in Spain, the Netherlands and Europe), it represents another great endorsement for the firm that KKR/Round Hill has decided to choose WJG as their construction partner.
At this stage, we make no change to our forecasts or 230p/share valuation - but look forward in hearing news at the FY18 trading update later this month. In our view, the business deserves its premium rating vs peers, reflecting the superior growth, asset turns, lower risk and cash-flows generated.
Two new sites boost forward visibility
Published: Aug 29 2018

Watkin Jones provides the end-to-end development and management of large scale, multi occupancy accommodation, focusing on purpose built student accommodation (PBSA) and residential build to rent (BTR).
The UK’s 67m population is growing at a healthy 1% pa clip, albeit there was a slight dip in the birth rate at the turn of the Millennium. Leading this year to a 3% fall in the number of 18 year olds, and a 1.9% decline in British students accepting places at University (UCAS). Offset partially by a 3%-4% increase in overseas applications, leaving the total 2018/19 freshers’ intake very marginally lower (-1.1%) at c. 530k. 
But the good news is that this trend is set to reverse strongly between 2021-31, and students are trading up, particularly in their 2nd and 3rd years when typically forced into lower quality digs.
Yesterday Watkin Jones said that it had exchanged contracts on a new 599 bed site with planning consent in Wembley (London) from Kelaty Propco Limited for an undisclosed fee. The project is scheduled for completion at the start of the 2021/22 academic year – adding approx 20% to that period’s output, and ~6% to the entire >10,000 unit pipeline.
But that’s not all. Elsewhere, Watkin Jones is leveraging its expertise in the expanding Build-to-Rent sector (BTR), where it further announced yesterday a new development agreement relating to a 300 apartment scheme on adjacent land with the same vendor. This time construction is set to finish in Mar’21 - lifting the pipeline by >18% to 1,900+
Consequently, we make no change to our projections or 230p/share valuation. Reiterating too, that the business deserves its premium rating vs peers, reflecting the superior growth, asset turns, lower risk and cashflows generated.
Watkin Jones Plc
Published: May 29 2018

CEO Mark Watkins Jones and CFO Philip Byrom discuss the interim results and outlook for Watkin Jones Plc.
Onwards and upwards
Published: May 22 2018

'Success breeds success' is a crucial, yet under-appreciated, concept when it comes to investing. A philosophy embraced by Watkin Jones plc, who under the tutelage of CEO Mark Watkin Jones since 2003, has been transformed from regional Welsh house-builder to become one of the UK’s leading developers of purpose built student accommodation (PBSA) and Build-to-Rent (BTR) properties. 
The good news for shareholders is that this ‘X-factor’ is set to continue. The company announcing last Friday that it had appointed another accomplished leader to take over the helm - with Richard Simpson (42), previously Unite’s Property Director, set to join on 2 January 2019.
Additionally, nestled within today’s strong H1 results – where adjusted PBT came in at £23.6m (+11.9%) on turnover up 18.4% to £158.3m - was news that the Board is “exploring ways to establish a new BTR investment vehicle”. Here, we suspect that WJG would retain a minority stake, but could nonetheless generate attractive returns, acting as either the fund manager and/or lettings agent.
According to the British Property Federation, the aggregate BTR housing stock (either completed, under-construction or in planning) at the end of Mar’18 jumped 30% YoY to 117.8k units. Jacqui Daly (Savills Director) predicting “at this rate, we expect [the industry] could double to 200,000 within the next two years”. 
Indeed, only last Friday the company disclosed that it had been selected by M&G Real Estate and Lochailort, to develop a new £68.5m BTR project in Reading, entailing 315 apartments (studio, 1, 2 or 3 bed). Work will commence shortly with completion slated for 2021. Meaning that WJG today has a consented pipeline of >1,000, and is well on the way to hitting its 2023 target of delivering >1,500 units. 
With regards to the numbers, we make no change to our FY18 estimates, supported by circa 80% GP cover (ED estimate). What’s more, WJG closed March with a pristine balance sheet sporting £38.4m of net cash, and declared a 12.3% bump up in the dividend to 2.47p. 
To us, the stock is worth 230p/share - representing a deserved premium to peers, thanks to its superior growth, RoE, asset turns, lower risk profile, robust cashflows and exposure to numerous secular trends.
On track for another record year
Published: Apr 05 2018

Watkin Jones (WJG) provides the end-to-end development and management of large scale, multi occupancy accommodation, focusing on purpose built student accommodation (PBSA) and residential build to rent (BTR).
According to respected economists (Jorda, Knoll, Kuvshinov, Schularick, and Taylor), UK housing has delivered annualised real returns (net inflation) of 5.6% between 1870-2015 and 6.8% since 1980 – split roughly 60:40 capital:rental – vs 2.8% and 4.7% pa respectively for bonds. Better still, when included in a basket of 16 major OECD countries, residential property has also been considerably more stable than equities. Never failing to increase in value over a 5-year period, and generating the highest risk-weighted gains of any asset class. 
Sure, certain well-heeled Central London neighbourhoods have been experiencing price deflation of late. Yet for Watkin Jones’ bread-and-butter of supplying purpose-built student accommodation, conditions remain buoyant. Underpinned by favourable demographics, healthy capital inflows and robust demand from international students (eg from China & India) who typically seek quality living space. 
Looking ahead we expect these trends to be sustained, and believe similar dynamics are taking root in the fledgling residential Build-to-Rent market. And this morning the Board released a positive trading statement for the 6 months ending March 2018, adding that demand remains strong, and H1 results (due on 22nd May) would be in line with FY18 expectations.
WJG has a development pipeline of >9,800 student beds (vs 9,120 Sept’17), of which around 8,300 (or 85%, up from 7,497 at y/e) possess planning permission. All sites due for delivery this academic year (3,415 beds) have been forward sold with another 5 (2,675 beds) slated for 2019/20. Thus providing excellent forward visibility.
We make no change to our forecasts, supported by circa 80% GP cover (ED estimate) for FY18. We calculate the stock is worth 225p/share - representing a deserved premium to peers, thanks to its superior RoE, lower risk profile, robust cashflows and exposure to numerous secular trends.
An interview with the CEO and CFO about results and prospects
Published: Jan 19 2018

Mark Watkin Jones, CEO and Phil Byrom, CFO, discuss the Group's recent results announcement at the Equity Development offices.
Excellent end of term report
Published: Jan 18 2018

Watkin Jones has reported a strong set of full year results with PBT, EPS and DPS in line with expectations. At this stage in the cycle the attractions of investing in a company that operates a lower risk model in two of the most attractive areas of residential real estate, namely purpose-built student accommodation (PBSA) and build to rent sector (BTR) are apparent, and we believe the stock justifies a significant premium to other housebuilders.
Watkin Jones’ shares trade on 13.7x PER (calendarised) for September 2018 with a 3.5% dividend yield. For the following year the PER falls to 12.9x and a yield of 3.8%. In our opinion this is undemanding given the group’s consistent long term record of profit growth, its strong cash generation profile, its excellent medium term prospects as a leading developer within the growing UK student accommodation market and the growth opportunity within its BTR operation. 13.7x represents a 39% premium to the Housebuilding sector on PER.
We continue to argue that Watkin Jones offers considerably better medium term visibility and growth than the average Housebuilder and should therefore trade at a 30-50% PER premium to the sector.
2017
Ready for the start of term
Published: Nov 02 2017

Watkin Jones’ year-end trading statement outlines its successful completion of all 10 planned student accommodation developments for FY2017, and reinforces the excellent visibility it enjoys due to its strong development pipeline and robust forward sales position. The company operates in two of the hottest areas of residential real estate, namely purpose-built student accommodation (PBSA) and build to rent sector (BTR). 
The largest division of Watkin Jones has again performed well in 2017 with 10 developments being completed as planned (3,314 beds). Looking into 2018, 10 planned developments (3,415 beds) have been forward sold and provide the company with significant visibility. The 2019 position is also strong with five developments (2,959 beds) already forward sold. In addition, the company has secured an additional eight sites (2,959 beds) for proposed development between 2019 and 2021.
Watkin Jones is continuing to build momentum in the BTR sector. The Group has ownership of three development sites and is in separate negotiations on several other opportunities, from which it is targeting to develop approximately 1,500 units between 2018 and 2022, subject to securing the necessary planning consents. 
The asset management business, Fresh Property Group, which includes Fresh Student Living and Five Nine Living, continue to progress in line with expectations. The number of beds under management has increased by 30% over the past year (16,082 beds) across 53 schemes for 2017/18.
Watkin Jones’ shares trade on 14.9x PER for September 2018 with a 3.1% dividend yield. For the following year the PER falls to 14.3x and a yield of 3.4%. This premium rating is deserved given its long-term record of growth, strong cash generation, and excellent medium term prospects.
The shares have risen by 60% since we initiated in March, and currently trade at just over a 40% premium to the house building sector. However, we think this is deserved and looking forward the risks to forecasts are on the upside.
View the Results Webinar
Published: Jun 19 2017

You can now hear Mark Watkin Jones, Chief Executive Officer, present the half year results to 31 March 2017 on behalf of Watkin Jones. 
To view simply click on the video below. 
Graduating with honours
Published: Jun 02 2017

Watkin Jones has reported a robust set of interim results with PBT, EPS and DPS coming in ahead of our expectations. This company operates in two of the hottest areas of residential real estate, namely purpose-built student accommodation (PBSA) and build to rent sector (BTR) and it operates a lower risk model. Therefore we believe it should trade at a bigger premium to other housebuilders. 

The company produced another strong set of results during H1. Despite an expected 8.4% decline in H1 revenues, significant margin gains drove a 23.8% increase in gross profits. Adjusted PBT rose 26.6% to £21.1m; EPS +28.8% to 6.7p. The company reported an interim DPS of 2.2p.

PBSA development: the company's largest division reported strong profit growth H1 with a significant increase in gross margins. Visibility of sales and earnings is very high in this division. It is set to have a very good second half with growth in revenues and margins YOY.

PBSA management: Fresh Student Living continues to grow its number of beds under management. It currently has 12,117 beds under management and this is set to grow to 19,532 by 2020.

BTR development: WJG completed its first BTR development in Leeds in the period. With a site with planning secured in Sutton and two further sites progressing through planning, we believe the medium term opportunity within this space is significant.

BTR management: the newest part of the group, Five Nine manages the Leeds scheme and currently has 535 BTR units under management.  

Watkin Jones’ shares trade on 14.1x PER for September 2017 with a 3.5% dividend yield. For the following year the PER falls to 12.9x and a yield of 3.8%. This appears undemanding given the group’s consistent long term record of' growth, its strong cash generation, and its excellent medium term prospects as a leading developer within the growing UK student accommodation market.

Watkin Jones - Equity Development Investor Forum, March 2017
Published: Apr 03 2017

Mark Watkin Jones, Chief Executive Officer, gives an overview of Watkin Jones.
Building Value
Published: Mar 28 2017

Watkin Jones is one of the UK’s leading property development companies involved in two of the hottest areas of residential real estate, namely the purpose-built student accommodation (PBSA) and private rented sector (PRS) segments.  Watkin Jones is very well positioned to grow market share and profits despite operating a very low risk and working capital light business model.
The long term fundamentals for PBSA are very positive with growing student numbers, strong demand for quality accommodation and institutional investors hungry for exposure. In PBSA, Watkin Jones enjoys excellent visibility of revenues, profits and cashflow through a combination of a strong development pipeline and a forward sales model. It also has an exceptionally good delivery track record and of gaining planning consents. The company's Fresh Student Living business offers vertical integration for the company within the student accommodation market and offers an end-to-end solution for institutional investors.
The PRS business is very well positioned to take advantage of continued rising demand for developments within the private rented sector. The company aims to operate along the same lines as its PBSA business, by developing a strong pipeline and forward selling to institutions. The growth opportunity could be significant in the medium term.
Watkin Jones trades on 11x PER for September 2017 with a 4.3% dividend yield. For the following year Watkin Jones’ PER falls to 10x and a yield of 4.5% This appears very undemanding given the group’s consistent long term record of growth, its strong cash generation, and its excellent medium term prospects as a leading developer within the growing UK student accommodation market. Watkin Jones currently trades at a 14% premium to the Housebuilding sector on PER but we would argue that this is too small a premium at this stage of the cycle. We conclude that Watkin Jones offers considerably better medium term visibility and growth than the average Housebuilder and should therefore trade at a 30-50% PER premium to the sector.

Foreign buyers gorging on UK stocks

Document can be downloaded here: UK plc ‘going for a song’

Being a shareholder in a company that receives a juicy takeover offer is a marvellous feeling. Something that many fortunate investors have experienced over the past 3 years. Thanks to a spate of M&A bids by deep pocketed overseas buyers – partly triggered by the June 2016 Brexit result, which sent the £ tumbling and adversely affected the FTSE.

Consequently today, given this trend is unlikely to end anytime soon, we’ve highlighted 30 possible acquisition ideas in the attached research paper. Spilt equally between large and smallcap stocks – covering a broad selection of industries.

What’s more we believe most of these businesses are underpinned by strong fundamentals and substantial upside in the event of predatory interest.

According to Factset Mergerstat/BVR, the average bid premium paid for such deals between 2004-14 was 30% – with the figure trending upwards since the global financial crisis.

Happy investing. Published 27th August 2019