Watkin Jones forecasts 10% profit drop
Shares in the North Wales-based developer plunged more than 30% this morning after it issued a profit warning for 2022 citing “market volatility”.
In particular, two forward sales that were planned to close in September have been delayed by current market instability and are now planning to transact in 2023, Watkin Jones said in a trading update to the London Stock Exchange.
“As a result, while second-half performance in 2022 was materially stronger than H1 2022, the board now expects full-year 2022 underlying operating profit to be around 10% below current market expectations,” it said.
The two forward sales were “impacted by recent market volatility”, the company added. And while build cost inflation was mitigated by increasing asset values in the first half of the year, the group has seen some “pricing and margin softness” on sales concluded in the second half of the year, with buyers facing increased funding costs.
Despite the challenges, the group said it has a strong balance sheet with gross and net cash standing at around £105m and £75m respectively as of 30 September, and investor demand for rental assets remains positive.
“While there remains considerable uncertainty around macroeconomic conditions in the short term, the group retains very good visibility over its development pipeline, has low levels of asset exposure and strong liquidity.
“We have good revenue visibility coming into the next financial year with around £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 full-year 2023.”
Watkin Jones has offices in Chester, Bangor, and London. In July, the company lost its planning appeal against Manchester City Council’s decision to reject plans for a £23.5m student accommodation block in Fallowfield.
The company had wanted to construct a 13-storey building with 425 rooms on the site of the former Union of Shop, Distributive and Allied Workers offices, in a Tim Groom Architects-designed scheme.
Last May, it sold 159 affordable homes in Crewe to housing association Plus Dane for £22.8m, and 23 units in Llay, North Wales, to Adra for £3.5m in a separate deal.
Meanwhile, the developer is pressing ahead with plans for more than 3,000 student beds across developments in Nottingham, Swansea, Bath, and London. Its pipeline was valued at £1.7bn in a stock exchange filing earlier this year.
In its statement today, Watkin Jones said it would continue to “seek to take advantage of attractive land acquisition opportunities, which should support margin recovery as market conditions normalise”.
