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Watkin Jones is back in profit and targeting a rental market recovery

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Watkin Jones Group LON:WJG, the London-based, AIM-listed construction company specialising in build-to-rent property published its half-year results to end of March earlier this week.

As previously reported, newly-appointed CEO, Alex Pease was promising the builder and property management company would bounce-back strongly after a tough few years for the housing sector – moreso than other parts of the real estate sector – as tenant demand would recover quicker than first-time buyers.

Pease read the market well. The UK is experiencing a rental crisis, with rent campaigners saying that the rental market is at breaking point, as the many that are shut out of the property-buying market as a result of high deposit requirements and many of the more affordable mortgage deals being pulled out of the market, are fighting for often shoddy and overpriced rental properties.

Fastest increase on record

 The Office for National Statistics published research last month that rental costs have increased at the fastest rate on record as tenants struggle to afford inflation-busting monthly outlays. The ONS’ research found London has had the highest rent hike, at 10.6%, way above inflation, which was running at 3.2% for March (but tipped to fall to around 2.1% by the end of the year).

The developer hasn’t had a bad half-year. On an adjusted basis Watkin Jones saw revenue grow 13.8% to GBP175.1m when compared to the same period in 2023. This spike in revenue saw operating profit swell by 122.2% y-o-y to GBP4m and profit before tax jump from GBP300,000 in 2023 to GBP3.4m in the six months to end-March.

This was all good news for shareholders, who saw basic EPS increase some 800% from 0.11p to 0.99p.

Pease was still sounding a cautious note. He said in a statement yesterday (21st May): “First half trading was in line with our expectations, with a focus on execution and operational performance […] There has been gradual improvement in sentiment in the property investment market, which we expect to support a continued recovery in forward fund transaction demand.”

Watkin Jones profits built on forward sales

The purpose-built student accommodation and build-to-rent developer returned to profit on the back of its delivery of previously sold developments and the forward sale of its Gas Lane student flat development in Bristol which saw Watkin Jones’ student accommodation division increase its profits from GBP4.8m for the six-month period last year, to GBP7.1m in the latest set of results. This alone accounted for almost 80% of group profits.


Although cautious, Pease did strike an optimistic tone, saying that the developer was expecting operating profits of at least GBP15m for the full year with an upper target of GBP20m in line with previous guidance and that the second half of the year would be better than the first, as it focused on operational performance while the forward-funding market has remained largely on hold, pending further clarity on the direction of interest rates. Sentiment is now gradually improving, according to Pease.

Unique capital-light model

Progressive Equity Research has Watkin Jones under coverage. Alastair Stewart, an analyst for Progressive said “[Watkin Jones…] in our view offers a unique capital-light development and asset management model for private and student rental [developing] buy-to-rent and purpose-built student accommodation schemes [that are] largely forward-funded by institutions, which acquire sites from Watkin Jones with the benefit of planning and then pay for the works monthly as development progresses, thus reducing capital tie-up for [the group].”

The company’s shares have disappointed somewhat. A year ago, Watkin Jones’ shares were trading hands at 96.4p. The company closed trading last night (21st May) at 50.5p, a fall of 47%. Over the year-to-date, the developer’s shares are down 9.8% and have traded in a range of between 30p and 99.9p over a 52-week period. Watkin Jones has a market capitalization of GBP137.6m.

Watkin Jones has suffered from the general slough of despond that has descended over the UK construction and property markets over the past few years, and its share price has suffered accordingly. However, given the developer’s focus on rental, a segment that seems high on the agenda, it is well-placed to capitalise on any recovery.

Stewart concluded: “We believe the group should benefit from continuing growth opportunities in new student accommodation, has early mover advantage in buy-to-rent, and this is all tied together by Fresh Property Group [an accommodation management service which manages both Watkin Jones and third-party developed assets] in what we have defined as a ‘virtuous circle’.”

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