Release Date: September 04, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Cairn Homes PLC (STU:C5H, Financial) reported a 67% year-on-year growth in closed units, delivering 894 units in H1 2024.
- The company maintained a gross margin of 22% and an operating margin of 16.8%, showcasing strong profitability.
- Cairn Homes PLC (STU:C5H) has a robust forward order book valued at over EUR1.3 billion, comprising 3,450 new homes.
- The company announced a EUR0.038 ordinary dividend, marking its fourth consecutive interim dividend.
- Cairn Homes PLC (STU:C5H) has a landbank that will deliver over 7,000 homes, ensuring long-term growth potential.
Negative Points
- The company faces potential risks from build cost inflation, although currently stable at around 2%.
- Finance costs increased to EUR6.8 million from EUR5.4 million in H1 2023, reflecting higher working capital investment.
- The average selling price for homes increased to EUR388,000, which may impact affordability for some buyers.
- The company has significant net debt of EUR157 million, although it has improved from the previous year.
- Cairn Homes PLC (STU:C5H) is heavily reliant on government policies and initiatives to support its growth in the affordable housing sector.
Q & A Highlights
Q: Can you provide more details on the land market and the six deals you entered, particularly the first option deal?
A: The land market in Ireland has been benign for years, but we've been more active recently, seeing good opportunities. Most deals are subject to planning. We signed our first option deal and expect at least one more this year. Our improving capital structure and forward funds support future growth. We aim to replenish our land bank, especially for first-time buyers, to deliver more homes for young people in Ireland.
Q: How should we think about the WIP balance into year-end and 2025, considering forward sales coverage and forward fund transactions?
A: Our WIP balance was EUR319 million at the end of the period. We expect this to reduce in the second half due to forward fund transactions, which allow us to recycle capital more efficiently and execute on growth opportunities, including self-funded high-density developments.
Q: How are you balancing organic investments for growth, net debt reduction, and share buybacks in the medium term?
A: We consistently invest in our business and distribute surplus capital to shareholders. We've returned EUR220 million to shareholders over the past three years and committed to EUR115 million this year. Our balance sheet is conservatively leveraged with net debt at 17% of inventory.
Q: Can you discuss build cost inflation and how it compares to house price inflation and procurement savings?
A: Build cost inflation is stable at around 2%, better than expected. We anticipate some commodity price increases early next year. Our scale and procurement advantages help mitigate these costs, allowing us to offer competitively priced homes. We're well-secured with 95% procurement for this year and 60% for next year.
Q: What is the outlook for exercising land options and the impact on return on equity (ROE)?
A: Land options allow us to secure land at a discount after rezoning and planning. We expect to exercise more options, especially for adjoining successful schemes. This strategy supports cash generation and aligns with our growth objectives. We aim to deliver a 15% ROE this year and will provide more guidance in January.
Q: How does the Passive standard help with business-to-government customers, particularly for apartments?
A: The Passive standard reduces energy costs, benefiting customers in affordable rental schemes. It ensures long-term value for state-owned assets and supports affordability for tenants. This initiative aligns with our commitment to providing high-quality, energy-efficient homes.
Q: What are the benefits of forward funding for the state and Cairn Homes?
A: Forward funding offers faster delivery at a lower fixed cost, providing cost security for the state. It allows us to deliver more homes efficiently, supporting our growth and meeting state housing needs.
Q: How does the land option strategy align with your overall growth objectives?
A: Land options allow us to secure land for future development, often adjoining successful schemes. This strategy supports our growth by replenishing our land bank and delivering more homes, particularly for first-time buyers. It also aligns with our medium-term commitment to reducing land balance and generating cash.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
