Interactive Investor

Henry Boot to beat full-year expectations

22nd August 2014 11:45

Harriet Mann from interactive investor

Continuing last year's strong performance, Henry Boot has impressed again in half-year results. Management is bullish on the full-year too, expecting profits to beat expectations.

Although revenues fell due to a divestment in the prior year, operating profit was up 79% at £14 million, with pre-tax profit enjoying similar growth to £134 million, more than doubling earnings per share (EPS) to 7.4p. Net debt was drawn down slightly to £33.1 million and net asset value per share stood at 149p. Henry Boot took the chance to boost its interim dividend to 2.1p.

Chairman John Brown notes that commercial development at the company is at its highest level since 2007.

He explains: "New, pre-let developments achieving hurdle rates of return, expected to commence in the second half of the year. The combination of this increased level of commercial development, our strategic land sites with well over 10,800 permissioned housing units available for future sale and the solid returns from the construction segment should strongly support growing shareholder returns into 2015 and beyond."

Although management expect profits to beat its own expectations, it has not detailed by how much. Its development portfolio is larger than at any point in the last five years thanks to acquisitions conducted at the bottom of the property cycle. With the market recovering, solid returns are expected.

Investec analyst Alison Watson also reckons that Henry Boot is well-placed to capitalise on its land bank. Thanks to sales and development surpluses, Watson does not see why the "impressive" 10-year average net asset value return of 9.3% can not be beaten over the next three years.

"Whilst a sizeable development pipeline offers additional upside, the group is underpinned by recurring income from its investment portfolio and Roadlink PFI concession. This justifies the 24% premium to spot net asset value (land in at cost) and an undemanding full-year 2014 price/earnings of 13.4 times," she adds.

With a 'buy' recommendation on Henry Boot, she also places a 277p price target on the stock, significantly higher than the 201p it had risen to in response to the update.