There is an expression on Wall Street that the “market goes up the escalator, but down the lift”. However during these type of ‘Pearl Harbor’ moments, investors are also offered incredible ‘once in a generation’ opportunities.
Sure we are not trying to call a bottom, albeit the risk/reward balance has now seriously shifted to the upside, especially for quality names like Watkin Jones.
Last week, the firm said it was temporarily suspending all non-essential work at its PBSA, BtR and housebuilding sites, in line with the rest of the industry. Nevertheless, sporting gross cash of £71m (net £35m, post site specific loans) as at March 2020, and a further £31m of undrawn credit facilities, we are confident that the group will emerge from this crisis in a stronger competitive position.
Additionally WJG has forward sold all of its 2020 developments, and 8 out of ten of those scheduled for 2021. Thus providing robust cashflow/earnings visibility, despite near term revenue recognition being pushed to the right due to business interruption and social distancing measures.
In terms of the numbers, the Board has temporarily suspended both guidance and the dividend, until “disruption caused by COVID-19 is better understood”. That said the company is already cutting discretionary spend and future investment, albeit mindful not to harm operational capability. Whilst further evaluating fiscal support programs.
At 146p, the stock appears attractively priced - trading on a trailing PER of 8.7x compared to typical sector multiples pre COVID-19 of between 10x–15x.
Good things come to those who are patient.
