Watkin Jones lowers guidance despite 'strong' performance

Watkin Jones reported a “strong” second-half operational performance in a trading update on Tuesday, as it continued delivery across both its purpose-built student accommodation (PBSA) and build-to-rent (BTR) development programmes, although recent market volatility saw it lower its guidance.

The AIM-traded firm said investor demand for residential for-rent assets remained strong, with three BTR schemes in Leatherhead, Bath and Cardiff, and three PBSA schemes in Nottingham, Swansea and Bath, forward sold in the second half, bringing the total of forward sales transacted in the year to £0.9bn, up from £0.3bn at the half-year.

In addition, the company said it achieved a “strong financial outcome” on the sale of the two leasehold assets, which had previously been flagged.

“While in the first half build cost inflation was mitigated by increasing asset values, the group has seen some pricing and margin softness on sales concluded in the second half, with purchasers facing increased funding costs,” the board said in its statement.

“Two forward sales that were planned to close in September have been impacted by the recent market volatility, and these are now planned to transact in 2023.

“As a result, whilst second half performance was materially stronger than the first half, the board now expects full-year underlying operating profit to be about 10% below current market expectations.”

Watkin Jones said it still had a “strong” balance sheet, with gross and net cash as at 30 September of £105m and £75m, respectively.

Looking ahead, Watkin Jones said that while there was “considerable uncertainty” around macroeconomic conditions in the short term, it retained “very good” visibility over its development pipeline, had low levels of asset exposure, and strong liquidity.

“We have good revenue visibility coming into the next financial year with £270m of revenue secured, and expect demand from institutions for residential for rent assets to remain robust.

“However we also believe it is prudent to assume that margin pressure as a result of purchasers' elevated borrowing costs will continue into 2023.”

The board said the balance sheet strength provided the company with a “distinct competitive advantage”.

“We will seek to take advantage of attractive land acquisition opportunities, which should support margin recovery as market conditions normalise.”

At 0919 BST, shares in Watkin Jones were down 31.54% at 104.2p.

Reporting by Josh White at Sharecast.com.