Paul Scott Stockopedia comments. 1x223 May 2023 15:53
Down 17% to 80p (£205m) - H1 results, FY PW - Paul
An interesting property developer, which has a good history of building projects (e.g. student accommodation) to order, pre-sold to institutional clients.
To set the scene, there was a big profit warning in Oct 2022, smashing the price down from c.150p to 80p. I bought a few as a toe-hold for a longer-term recovery, but also (bizarrely maybe!) anticipated another profit warning here on 27 Jan 2023 concluding that 2023 could be a bumpy ride, with another profit warning being a distinct possibility.
On 13 April 2023 I covered its update, when a contractor went bust, disrupting & costing more for a project in Exeter. Again, my conclusion was cautious, that publication of H1 results could trigger another dip in share price.
With hindsight, it would have been better to sit on the sidelines completely, but never mind.
Today’s interims are poor, as previously indicated, they’re actually in line with expectations, around breakeven.
H2 is expected to be materially stronger than H1, which is good.
However, it now looks as if they were previously far too optimistic for H2, and Progressive has roughly halved forecast for FY 9/2023 to £25m aPBT, which is 7.6p EPS.
Historically WJG has tended to produce about 15-16p EPS, so I remain of the view it should eventually recover to that level.
What’s gone wrong this time? It’s just delays to project completions - remember that WJG develops a small number of large building projects, so the numbers can vary a lot if completion of projects slips into the next year, which is now looking likely. It could warn on profits again, if the 5 deals it needs to close don’t happen by year end. So this is not a share for the faint-hearted.
On project pricing, it says this is broadly as expected, but with clients wanting more back-loaded funding, to suit their needs (in a higher interest rate environment I suppose).
WJG sees early signs of a recovery in its market conditions.
Project delays mean £15m profit shifts from FY 9/2023 to FY 9/2024.
Pipeline is down from £2.0bn to £1.7bn.
It calls the land purchasing pipeline “exciting”.
Build cost inflation - early signs of a reduction.
Paul’s opinion - obviously a setback, but one I was half-expecting, as you can see from the 2 SCVRs referenced above. As the shares get cheaper, the balance sheet support gets stronger, NTAV is now £153m, and the market cap down to £205m, so the previously big premium to NAV is now quite small. I don’t see any balance sheet risk, as it doesn’t have a large landbank, as it’s a more build-to-order type of business.
I’m currently about 20% down on a small position size, so it’s no great shakes, and the asset backing is now more solid than before. Hence I’ll wait to see where the share price bottoms out, then probably buy some more. As a medium-term recovery share, it should do well I think, which was my original investing
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