There are not 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 2019 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.â€
