Watkin Jones – this really is a growth story both now and going forward
Watkin Jones (LON:WJG) is a leading UK developer and constructor of multi-occupancy residential property assets, with a focus on the student accommodation and build to rent sectors.
The group, which is announcing its Interim results next Tuesday (21st), has strong relationships with institutional investors, and a good reputation for successful, on-time-delivery of high-quality developments.
Founded in 1791 by carpenter, Huw Jones, the company prospered as he turned from carpentry to construction and set the business on a new path. Since then successive generations of the Watkin Jones family have developed the Group to its leading position in the UK’s building, property development and construction industries.
Since 1999, Watkin Jones has delivered 38,000 student beds across 117 sites, making it a key player and leader in the UK purpose-built student accommodation market.
In addition, the Fresh Property Group, the group's specialist accommodation management company, manages over 15,400 student beds and build to rent apartments on behalf of its institutional clients.
Watkin Jones has also been responsible for over 80 residential developments, ranging from starter homes to executive housing and apartments. The Group is now expanding its operations into the build to rent sector.
The group's competitive advantage lies in its experienced management team and business model, which enables it to offer an end-to-end solution for investors, delivered entirely in-house with minimal reliance on third parties, across the entire life cycle of an asset.
Watkin Jones was admitted to trading on AIM in March 2016. At that time the company raised £131m for a mixture of working capital and on behalf of a few vending shareholders. Placed at 100p a share the company was then valued at £255m.
A month ago the company announced a first half Trading Update stating that the group had continued to deliver a good trading performance, in line with its expectations. Performance for the six months to 31st March had been good and forward sales are secured for 2019 and 2020 with around 80% sold.
On the student accommodation side its forward sold development pipeline had grown, reflecting strong demand from institutional investors - with a secured development pipeline in excess of 7,500 beds across 17 sites, which are scheduled for delivery over the period FY19 to FY21.
Of those, 11 sites (some 5,334 beds) have been forward sold. All of the six schemes (2,723 beds) under construction for delivery in FY19, ahead of the 2019/20 academic year, were progressing in line with expectations.
Investor interest in the burgeoning build to rent market had also continued to gain momentum and the group is positioning itself to be a leading developer and manager in this sector, leveraging its experience in purpose-built student accommodation.
The group added significantly to its build to rent development pipeline in the period and is now in control of a high quality, geographically diverse pipeline, including three sites with planning (415 apartments) and three sites (circa 800 apartments) for which planning is being progressed.
In addition to its own pipeline of sites, the group is progressing well with developments for professional investors.
The group's specialist accommodation management business continued to perform well in the first half, with 15,421 units under management across 56 schemes at the start of FY19. By FY22, Fresh is currently appointed to manage 21,018 units across 73 schemes.
The group's residential business saw a robust level of sales activity in the first half of the year, reflecting the relative strength of its primary North West market.
Richard Simpson the group’s CEO stated in the Update that “The group's continued good trading performance underlines the strength of the Watkin Jones business model, even during times of broader uncertainty. Leveraging our development and property management expertise into the attractive purpose-built student accommodation and build to rent sectors, which are well supported by institutional investor demand, continues to deliver solid returns for the group and its shareholders. We are making good progress in the financial year and remain confident in the group's medium-term prospects."
With 255,268,575 shares in issue the company is valued at circa £574m. Large holders in the equity include: Watkin Jones 1992 Trust with 15.2%; Woodford Investment, with 13%; Estate of JM Jones, 10.9%; Octopus Investments, 8.06%; GLG Partners UK, 5.71%; Seek Ventures, 3.92%; GLG Partners LP, with 3.79%; BlackRock Investment, 3.63%; Polar Capital, 2.86%; and JP Morgan Asset, with 1.96% of the equity.
Brokers estimates are that the current year to end September 2019 will see revenue up £28m at £391m and pre-tax profits coming out at £51m, giving some 16p in earnings and 8p in dividend per share.
The 2020 year could well see sales of £433m and profits of nearly £56m, worth 17.75p of earnings and 8.7p in dividend per share.
Already, with various developments projected and pre-sold, even further out estimates suggest that revenue could reach £620m in five years-time, pushing profits up to over £75m, with earnings ranging around 24p per share.
At the current 225p the shares of Watkin Jones trade at just 14 times current year earnings and a mere 12.7 times prospective earnings. And just a few years out and 24p of earnings would take them down to 10 times earnings.
This is a quality stock that is about solid growth and I set an easy 300p Target Price.