Saturday 21 September 2019

Cairn Homes says land bank more valuable than company


Stock photo: Bloomberg
Stock photo: Bloomberg

Shawn Pogatchnik

CAIRN Homes says it's built up a land bank worth much more than the company's market capitalisation of €928m - but must deploy those assets gradually to deliver consistent growth in sales and profits.

Cairn's chief executive, Michael Stanley, made that assessment yesterday as the homebuilder published 2019 results through June that showed a 48pc gain in revenues to €192.4m versus the first six months of 2018.

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The results nonetheless disappointed investors, particularly Cairn's gross profit margin of 18.6pc. Higher-than-expected costs in building 120 apartments at Six Hanover Quay - sold to an institutional investor for €101m - was cited as the key reason for failing to meet analysts' forecasts of reaching a gross margin nearer 20.5pc.

As a result, Cairn shares slumped by 7.6pc to close at €1.07 despite Cairn's announcement of its first dividend to shareholders, who will receive €44.7m in the form of a 2.5 cent dividend per share plus share buybacks.

"The purpose of our business is to be long term and sustainable. I didn't get overly excited a year ago when our share price was X; I'm not overly depressed when it's Y," Mr Stanley said.

"In order for us to scale we needed to assemble a large land bank up front, because we have large sites that for all sorts of reasons we can't build on today," he said.

He said Cairn is on course to sell a record 1,100 housing units this year, with construction active on 15 sites, mostly in and around Dublin. Cairn by mid-2020 plans to launch residential construction at the former RTE lands at Montrose and at Parkside in Balgriffin, with nine more sites - including in Stillorgan, Blackrock, Maynooth, Citywest, Swords, Greystones and Carrickmines - in the mix for development between 2020 and 2024.

When asked to assess the value of Cairn's land bank, he said: "We realise the value only when we sell the homes and hand over the keys. Some people might look at current transactions for land and say: 'Well, based on where land is trading today, Cairn bought very well in 2015'. Around 90pc of our land bank we bought or contracted before the end of 2015. Could I replace it today at what I bought it for in 2015? Not a chance. Could I even have bought it in the locations where we own land today? Not a chance."

When asked if the land bank was more valuable than Cairn's current market cap, Mr Stanley laughed.

"Considering that our market capitalisation is almost on par with what we spent on the land," he said, "that's a reasonable assumption, yes!"

He said Cairn was always looking for new sites, but had bought virtually nothing since 2017 and intends to keep its total stock relatively stable.

"We are not going to be a net investor in land for the next five to seven years. If we do buy a site strategically," he said, "that's likely to be balanced by disposals elsewhere in our land bank."

Irish Independent

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