Insider: interesting moves being made at this build-to-rent firm

Our stocks expert takes a close look at a build-to-rent firm which has seen its chairman snap up a large chunk of shares.

Grenville Turner's imminent exit at build-to-rent firm Watkin Jones (LSE:WJG) after nearly six years as chairman hasn't put him off buying £200,000 of shares in the AIM-quoted company.

Turner, who is the ex-chairman and chief executive of former FTSE 250-listed estate agency firm Countrywide and has also served on the board of Rightmove (LSE:RMV), last acquired the company's shares a few weeks after its stock market listing in 2016.

He more than doubled his money on that occasion and clearly thinks there's further potential after buying himself a leaving present ahead of his departure in October.

His successor, the Hill & Smith Holdings (LSE:HILS) chairman Alan Giddins, also bought £150,000 worth of shares last month, a few days after his appointment to the board was confirmed.

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The shares purchase by Giddins was made at 230.5p, with the one by Turner taking place on Wednesday at 229.5p.

That's above the discounted 210p at which holdings connected to former chief executive Mark Watkin Jones recently raised £52.5 million in a share sale.

The ninth generation of the family that started the firm in Bangor in 1791, Watkin Jones took the general construction business based in north west Wales from £17 million revenues in 1990 to one with sales of £363 million by the time of his departure in 2018.

This included from student accommodation, where the company has now delivered 43,000 student beds across 130 sites since 1999, and the management of over 20,000 student beds and build-to-rent apartments on behalf of institutional clients.

Former Unite Group director Richard Simpson, who is now chief executive after being appointed by Turner in 2018, is looking to harness the company's capabilities in student accommodation by targeting more residential properties for rent.

The impact of the pandemic meant profits in the March half year fell 3.3% to £25.8 million, but Simpson said the fundamentals supporting build-to-rent and student accommodation assets continued to reflect strong institutional interest.

The revenues contribution from build-to-rent jumped 43.9% to £59.1 million, including from forward sold developments in Reading, Sutton, Stratford and Wembley.

Turnover from purpose-built student accommodation was 13.3% lower at £104.8 million, in part due to the one-off benefit of a development completed the previous year.

Management have continued to build the pipeline, which now has a future revenue value of £1.6 billion and is being driven by the doubling of build-to-rent units to 5,008.

The company is also piloting an opportunity to re-focus its residential house building operation as a developer of affordable homes.

Berenberg said recently that it believed this division could be scaled up to a £200 million revenues business, as well as adding another layer to the company's already strong ESG (environmental, social and governance) credentials.

The broker describes Watkin Jones as its top pick in the UK residential subsector, with the current 14.7 times 2021 earnings valuation seen as undemanding at a time when growth prospects also appear significant.

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They point to strong market demand, unchallenging margin assumptions and scope for significant organic expansion of all business segments.

Berenberg has a price target of 280p, while house broker Peel Hunt also had a buy recommendation and 278p estimate following May's interim results.

Peel Hunt's Clyde Lewis said: “We continue to believe the group's skill set is in short supply and undervalued by the current share price.”

The AIM-quoted stock closed last week at 233p for a valuation of just under £600 million. It had been trading at 286p prior to the pandemic.

ConvaTec

A results-day slide for the FTSE 250 index-listed medical products and technologies company ConvaTec (LSE:CTEC) has been followed by a £20,000 purchase of shares by one of its directors.

Non-executive Professor Constantin Coussios bought his shares on Friday afternoon at a price of 235p, compared with the four-year high of 256.4p at which they opened the session.

Strong trading in advanced wound care helped operating profits to rise almost 20% to $136 million (£97.8 million), while the company kept up its recent record of upgrades by lifting its guidance for full-year organic revenues growth to between 3.5% and 5%.

But there was to be no further bounce for shares as investors took the opportunity to take profits, leaving ConvaTec to close the week at 236.9p.