Easing NPPF Policies Will Unlock £13 Billion In Development Opportunities

Key Takeaways

• Easing planning policies could unlock development opportunities, increasing plot values and boosting future land sales and profits.
  
• Strategic focus on top-quality developments and strong reservations could stabilize revenue, driving earnings growth through better price realizations and higher margins.
  
• Planning system issues and government policy changes pose risks to revenue growth, while high debt and lower profitability hinder financial flexibility.

Catalysts

Engages in property investment and development, land promotion, and construction activities in the United Kingdom.

• The anticipated easing of the planning system due to proposed changes to the National Planning Policy Framework (NPPF) could unlock new development opportunities and increase plot values, potentially enhancing future land sales revenue and profits.
  
• A robust development pipeline valued at £1.3 billion, with significant projects including a £200 million near-term occupier-led industrial development, could drive future revenue growth as the company leverages these developments to tap into demand for industrial and urban residential/commercial projects.
  
• The commitment to growing capital employed to £500 million and targeting a return on capital employed (ROCE) towards 10% reflects an expectation of improved operational efficiency and profitability, potentially increasing overall earnings.
  
• The company's strategic focus on high-quality developments and premium homes, amid signs of market recovery and strong reservations, could aid in revenue stabilization and drive growth in earnings through better price realizations and higher net margins.
  
• With a new bank facility of £125 million extendable to 2029, allowing increased investment, the company is well-positioned to capitalize on growth opportunities and manage its debt profile, potentially supporting improved earnings and shareholder returns through more aggressive project execution.

Henry Boot Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Henry Boot's revenue will grow by 11.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.0% today to 6.4% in 3 years time.
• Analysts expect earnings to reach £25.3 million (and earnings per share of £0.17) by about February 2028, up from £11.3 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as £19.7 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.6x on those 2028 earnings, down from 23.8x today. This future PE is greater than the current PE for the GB Consumer Durables industry at 12.6x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.25%, as per the Simply Wall St company report.

Henry Boot Future Earnings Per Share Growth

Risks

• The existing planning system difficulties have hindered Henry Boot and could impede future developments, potentially affecting revenue from property sales due to delays in project delivery and approvals.
  
• Despite a recent 5% dividend increase, operating profit is notably lower, which might signal caution for investors about the company’s earnings stability in the near term.
  
• The construction segment has experienced a fall in turnover due to delayed projects, impacting net margins and overall profitability of the group.
  
• High net debt and gearing above the optimal range, combined with recent refinancing and a high level of financial commitments, could impact financial flexibility and earnings if not managed prudently.
  
• Government changes like the National Planning Policy Framework could introduce risks such as increased expectations for affordable housing, potentially putting pressure on land prices and affecting revenue growth and net margins.

Valuation

• The analysts have a consensus price target of £3.35 for Henry Boot based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £4.4, and the most bearish reporting a price target of just £2.55.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £396.1 million, earnings will come to £25.3 million, and it would be trading on a PE ratio of 23.6x, assuming you use a discount rate of 10.2%.
  
• Given the current share price of £2.01, the analyst price target of £3.35 is 40.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.