Demolition is sometimes required before construction can begin. The demolition ball hit British homebuilder Countryside Properties on Thursday after the sudden exit of Iain McPherson, CEO. Shares fell as much as 28 percent.
John Martin, who joined as chairman earlier this year, will step in to oversee the clean-up and look for a replacement boss. The US fund Browning West, the group’s largest shareholder, also got a non-executive seat on the board.
The fluctuation follows a collapse in trade during the last three months of last year. Completions decreased by more than a third and group’s operating profit decreased by more than half. Poor execution is to blame for one of the country’s most profitable homebuilders faltering in a time of booming demand.
It is likely to renew renewal of the strategic tilt announced in July, which focused Countryside on its partnership issues. This shift doubles Rural’s work for housing associations, private landlords and other landlords. His role in these partnerships does not extend to the purchase of land. This means returns on capital employed are as much as 50 percent compared to about 20 percent for traditional homebuilders.
However, there are disadvantages. Gains on land revaluations are forfeited. There are also greater risks of building on behalf of others, as illustrated by Carillion, the contractor who collapsed in 2018. Tough competition and a cheese-saving public sector client could lead to contracts being underpriced.
Usman Nabi, the founder of Browning West, is confident that the company can finally achieve good margins. There is indeed a huge demand in Britain for affordable housing. But the claim that only a limited number of builders are capable of delivering the high specifications required is debatable.
Rural equities are now trading at 8 times 2022 earnings, a solid discount on the sector’s 10 times multiple. Nevertheless, investors in the market for a remedy must beware of the risk of shaky foundations.