FTSE 250 property developer St Modwen Properties (SMP) has warned of a big fall in earnings this year thanks to the coronavirus lockdown.
Already this year the impact has been enormous on profits. In a trading update for the six month period to 31 May, adjusted earnings from operational activities were seen falling to around £4 million to £5 million. That compares with £16.2 million reported for the same period in 2019.
‘The disruption from the Covid-19 crisis will lead to a reduction in housebuilding profits and retail rent in the first half of 2020,’ the company said.
St Modwen also anticipated a reduction in the valuation of its residual retail assets and surplus residential land.
Yet the share price stayed resilient on Wednesday, nudging 0.7% higher to 355.5p, with investors having long since factored a bleak 2020 into the valuation. St Modwen’s share price has slumped by a third since mid-February, and has failed to stage a meaningful recovery.
GROWTH DRIVERS INTACT
St Modwen has been repositioning its portfolio in the last three years, shifting away from areas like what it calls ‘bad retail’, effectively shopping outlets, and into projects in the logistics and industrial sectors.
The market largely supports the move, believing that this will provide a solid base to the company's longer-term structural growth ambitions.
The company said its focus remained on recycling capital into higher-returning assets, with growth in logistics/industrial and the residential sectors continuing to be positive.
‘Albeit not fully insulated, half-year valuations in this part of the business are expected to be more resilient,’ it added.
The company restarted work on its homes sites in the middle of May and 22 sales centres have since reopened.
However, a delay in production meant that, at 280, completed unit sales for the half year were down 32% on-year.
COST CUTTING SAVES 15% OF EXPENSES
Cost-cutting measures, including a reduction in executive salaries and ‘selective redundancies’ were expected to result in savings equivalent to around 15% of last year's business unit operating and central administrative expenses.
St Modwen said its balance sheet and liquidity ‘remain strong’, with £157 million of cash available at the end of May and no debt maturities until December 2023.
The firm added that its decision to pause any uncommitted capital expenditure and ‘tight control of costs’ means net borrowings at the end of May stood at £360 million, meaning its portfolio can withstand a 40% fall in value before the firm reaches its closest loan-to-value covenant.
