ii view: McCarthy & Stone starts countdown to reopen sales offices

Shares of this retirement home builder have been hit hard, but its residents are weathering Covid well. 

Covid-19 update  

• Reopening sales and construction sites
• Available cash balance of £146 million as of 30 April

Chief executive John Tonkiss said:

"We have seen a lower impact of coronavirus in our developments, than the general over-65 population, and this proves more than ever that our communities are safe, resilient and supportive places to live.

"By providing independent apartments with the right level of on-site care and assistance, retirement communities are an effective 'Third Way' to the current options of remaining in a family home or moving into residential care. The UK must now learn the lessons from this crisis and redefine how best to support our ageing population. We need a joined-up and long-term plan, starting with more and better housing for older people."

ii round-up:

Retirement home specialist McCarthy & Stone (LSE:MCS) is planning to reopen its sales offices on the 8 June closed since late March under the coronavirus pandemic. 

The early sales focus will be on its already completed 1,350 units with new Covid-19 safety measures in place.  Build activities will restart gradually, beginning with the reopening of sites that are closest to completion.

McCarthy shares rose by more than 4% in early UK trading, although have almost halved in the year-to-date, underperforming traditional housebuilders such as Persimmon (LSE:PSN), Barratt Developments (LSE:BDEV) and Berkeley Group (LSE:BKG). 

McCarthy previously highlighted the lack of government support given to the retirement sector, along with the 40% drop in housing transactions suffered between 2015 and late 2018. The Help to Buy scheme is aimed at lifting first-time buyers onto the property ladder. 

Given early action on Covid-19, McCarthy underlined the reduced number of corona cases across its 441 retirement communities compared to the general over-65s UK population. Independent but supported living offered what the chief executive described as a “Third Way.”

The Bank of England’s Covid Corporate Financing Facility (CCFF) had been successfully tapped. Available cash stood at £146 million as of 30 April. 

In late March McCarthy cancelled its 3.5p per share final dividend under measures to conserve cash. Management estimated that actions taken would allow it to operate with no sales revenue for a period of two and a half years. 

First-half results for the period to the end of April are scheduled for 15 July. 

ii view:

McCarthy & Stone is a builder and manager of retirement communities, and listed on the stock market back in November 2015. It has built and sold more than 58,000 properties across more than 1,300 retirement developments since 1977. In its last full financial year, it completed on 2,301 units at an average selling price of £308,000. 

In September 2018, the group outlined a full-year 2019-2023 transformation strategy. Under the plan, it is looking to move its focus from growth to operating profit margin and Return on Capital Employed (ROCE), along with resizing its cost base. It has also taken an interest in the rental market. 

For its last full financial year, ROCE remained unchanged at 10%, while the underlying operating profit margin retreated to 9.4% from 10.1% in 2018, as the group leaned on more part-exchange deals and incentives in order to counter subdued market conditions. 

For investors, the Covid crisis only adds to what were already challenging trading conditions. The attraction of its dividend payment has been removed, while 2019 underlying operating profit proved flat. That said, with over 12 million people in the UK aged over 65 rising expected to be over 17 million come 2043, demand for retirement accommodation looks likely to grow. For now, investors appear to be demanding more concrete evidence of a recovery before committing much more new money. 

Positives: 

• Restarting operations following Covid-19
• Initial rental pilots have shown strong demand

Negatives

• Final 2019 dividend cancelled under Covid-19
• 2019 profit margin retreated to 9.4% from 10.1% in 2018

The average rating of stock market analysts:

Hold