Countryside Properties PLC

Countryside Properties PLC (LON: CSP) is a Brentwood, the United Kingdom-based urban regeneration and housebuilder company. The group mainly operates in the South East of England and London, and with a presence in the North West of England. The company’s business is differentiated into two divisions: Housebuilding and Partnerships. It was founded in 1958.

On 23^rd January 2020, the company will release the Q1 trading statement. The company will also release the half-year 2020 results.

Financial Highlights (for the year ended 30 September 2019, £million)

(Source: Final Results, Company Website)

In the financial year 2019, the company’s total completion increased by 33% to 5,733 homesas compared with the corresponding period of the last year. The adjusted revenue increased by 16% to £1,422.8 million in FY19 againstthe £1,229.5 million in FY18, driven by an increase in the number of completions. While the reported revenue for the financial year 2019 stood at £1,237.1 million. In FY19, the adjusted operating margin reduced by 70bps to 16.5%as compared with the financial year 2018 of £17.2%, driven by the change in tenure mix. This reduction was partially offset by a higher margin in the Housebuilding division as the company continued the focus on operational efficiency. The adjusted earnings per share rose by 13% from 36 pence in FY18 to 40.8 pence in FY19, while the reported basic earnings per share were reported at 37.7 pence in FY19. ROCE (Return on capital employed) surged to 37.8% (2018: 37.4%) as the business model continued to deliver robust returns from mixed-tenure delivery. The directors of the company recommended the payment of a final dividend per ordinary share of 10.3 pence (2018: 6.6 pence), taking the total dividend per ordinary share for 2019 of 16.3 pence (2018: 10.8 pence). The company’s total order book for FY2019 was £1,166.1 million.

Share Price Performance

Daily Chart as at January-08-20, before the market closed (Source: Thomson Reuters)

On 8th January 2020, Countryside Properties PLC shares were trading at GBX 460 at the time of writing before the market close (at 11:15 AM GMT), down by 0.48% against the previous day closing price. Stock's 52 weeks High and Low are GBX 477.80/GBX 275.60. The company's stock beta stood at 1.06, reflecting slightly higher volatility as compared to the benchmark index.

Valuation Methodology


Conclusion
The United Kingdom’s property market is quite competitive.Rising fears creeping in that the profits may come under pressure, due to a potential global downturn, the end of the key government assistance programme (Help to Buy) threatening to take a toll on the company finances, and the Brexit uncertainty. An economic downturn would hamper the client’s ability to afford houses. Several of the housebuilder’s companies are preparing for a harder market through M&A (mergers and acquisition). The home construction industry outlook stays uncertain, mainly in the United Kingdom. The company operates in a challenging environment which requires continuous investment, sometimes at the cost of profitability, to stay ahead of competitors.

However, some stresses in the United Kingdom housing market started to emerge during the year,with property sales in the second-hand market slowing, particularly at higher price points as a result of the impact of increased stamp duty together with the uncertain macroeconomic backdrop. Moreover, the company is trading near a 52-week high, raising doubts at its upside potential at current prices.

Based on the above rationale and support from valuation done using the above method, we have given a “Sell” recommendation at the closing price of GBX 462.20 (as on 7^th January 2020) based on 9.33x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).

 *All forecasted figures and Peer information have been taken from Thomson Reuters.
*The “Sell” recommendation is valid for the current price as covered in the report (as on 8th January 2020).

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