Watkin Jones plc: A Successful Start to Life on AIM

22nd Jan '17 by Sully8786

15 comments 13171 reads

On Wednesday of last week, AIM newcomer Watkin Jones plc, a UK-based construction and development company released their maiden full-year results for the year ending 30/09/16.

Business Overview.

While the company is new to the stock market, listing towards the end of March 2016, investors can trace the origins of the company to 1791.

Currently the company, through its subsidiaries, is engaged in property development and the management of properties for various residential occupation. The Company is engaged in developing and constructing various occupancy property assets with the main focus on the student accommodation sector, although there are plans to expand into the Private Rented Sector (PRS), too.

The company first came to my attention via PI World over on You Tube following a presentation by management at a Mello event shortly after the interim results were published. I have to say that I was quite impressed by the (in my view) grounded management, and rather capital-light business model.

I would encourage readers to seek the video out if you feel that this share is worthy of further research.

Results and Valuation.

The prelims were in-line with expectations, and the shares reacted positively on Wednesday and Thursday, only to tail off on Friday. Despite the rise, as evidenced by the Growth and Value chart from Stockopedia below, the shares are still cheaper than the market median for both price and dividend yield. Once cash is included, the shares seem cheaper still.

Stockpage

Indeed, if the shares traded at the same level as the sector median of 14.5 times rolling 1-year earnings then they would trade closer to 200 pence.

What Makes the Company a Good Investment?

As I alluded to previously, the company has, in my view found itself quite at defensive business model, which is capital light. The main 'risk' money is when the company stumps up the deposit for the land which is being acquired and obtaining Planning Permission.

However, under this model, the company will usually find an institutional buyer and forward sell the project, receiving payments at regular agreed intervals until the project completes.

Currently the company is achieving a blended gross margin of around 20%. This is expected to rise as legacy projects work out of the numbers and Fresh Student Living (currently boasting a 60% gross margin) scales up its operation.

Additionally, the company has over half of the projects through to 30/09/19 already forward sold. In…

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Andrew niven

23rd Jan '17

I think they have a great business model , building student accommodation to presold investors.
Perfect.!!!! I bought these shares re entry and they seem to be performing very well.

Sully8786

Thanks for your comments Andrew. I've also done a video on my You Tube channel where I go through the results - hopefully you and others will find it helpful.

While I think that there are risks with Watkin Jones (LON:WJG), I do think that the company is well run and the CEO still has a significant reason to continue to do well given the sizeable interest in the company via various trusts.

Wishing us both the best of luck.

Regards,

Dave S.

jonno

31st Jan '17

WJG turnover today in excess of 1.5 million shares versus average daily turnover of 377,000 and stock price up over 5%. Suggestions of corporate action perhaps or wishful thinking?

Hi Jonno,

Good question, not one that I could answer I'm afraid. I'd have said a tip somewhere to be honest. I note that Shares Magazine mentioned them in one of the last two issues

Now on a actual double-digit PE!

Obviously a bid would be welcome, but this is one that I think I could see me holding for a while and adding on weakness given the visibility.

Regards,

DS.

bestace

It was covered in the Daily Telegraph's Questor column this morning:

http://www.telegraph.co.uk/investing/shares/questordont-put-aim-listing-family-firm-has-no-debt-yield/

1st Feb '17

Thanks bestace, I've seen the start of it but don't subscribe to the paper so can't read the whole article.
As an aside, I see the writers have also tipped Staffline (LON:STAF).

Regards,
DS.

Howard Marx

23rd Mar '17

Watkin Jones CFO, G&J Watkin Jones To Sell Up To 19.7% Stake (ALLISS)
Thu, 23rd Mar 2017 17:26

LONDON (Alliance News) - Peel Hunt LLP said after the market close Thursday that G&J Watkin Jones 1992 Settlement Trust and Chief Financial Officer Philip Byrom have together decided to sell up to a 19.7% stake in Watkin Jones PLC.

The pair will sell up to 50.3 million shares via an accelerated bookbuild, to be conducted by Peel Hunt, who is acting as sole bookrunner in relation to the placing. The final price at which the shares will be sold will be agreed after the close of the bookbuild process.
The trust will sell up to 49.3 million shares, whilst Byrom will sell up to 1.0 million shares.

27th Mar '17

Hi Howard,

My thoughts are below - FWIW PR were saying that the sale was to satisfy institutional demand. We'll see what the RNS releases say going forward I guess.

https://youtu.be/ts7oWJIazOA

imranawan

Hi Dave,

It looks like Woodford picked up a new holding in Watkin Jones (LON:WJG), according to the RNS's issued this pm. I think its a positive given Woodford's historical performance. You'd also like to think he's done his due diligence. Hopefully 140-145 provides a decent support level for the share price in the short-term.

Regards,
Imran.

weycome45

2nd Feb '18

3rd Feb '18

Hi Weycome,

Your comment shows up better on my email than above for some reason.

The director options are covered in a PI World video from 2016 (if memory serves).

From further reading - opinion is split on this share - Graham N is not a fan, and I'm not sure I'd be a buyer here despite the visibility going forward in terms of projects that were forward sold.

While there were some elements of the announcement that soured what were record results I remain a holder.

I think it will be interesting going forward what happens here - will the family decide to sell? I think the business would be a good fit for Telford Homes (LON:TEF) and or Galliford Try (LON:GFRD).

In terms of the cashflow - I'll ask the company - but the below is what they announced to market on results day:

The Group's cashflow was strong. A net cash inflow from operating activities of £19.2 million was achieved after absorbing £18.4 million into working capital, mainly in respect of amounts recoverable on developments. Shortly after the year end we received £22.8 million of cash relating to forward sales we agreed during FY17, but which were not contractually completed in time to receive the cash by the year end. This was in respect of our development sites at Pittodrie Street, Aberdeen and Midland Road, Bath.

I'll let you know what I here back from them....

Regards

Thats a great idea contacting the company ! How do you do it ? Do you email or ring them ; they would answer so many queries in company accounts ...how do they react to us nosing around for straight answers ?

Thanks weycome - I'd just ring and ask to speak to the FD given the nature of your query.

I'd would be helpful if you could post the details of any conversation that you have to this thread.

Love the concept of WJG but I'm not convinced yet . Free cashflow per share is 50% of earnings per share due to

high re-investment levels and a big working capital increase to £18m.The directors £21m options package at IPO threw me too. I'm probably wrong but I wont be buying any of the stock right now.

andrewjames

4th Feb '18

There are clear similarities in the operating models of £WJG and Telford Homes (LON:TEF), but as a Telford Homes (LON:TEF) shareholder, I sincerely hope and expect that Telford Homes (LON:TEF) sticks to its knitting - or at least looks elsewhere. Issues include the fact that £WJG is relatively very expensively priced, that it plays outside the London zone that is Telford Homes (LON:TEF) stated focus and that it gets involved in estate management, which Telford Homes (LON:TEF) has avoided like the plague (correctly, in my view). This is not to knock £WJG which has done very well. I simply think that it makes no sense for Telford Homes (LON:TEF) to get involved in what would inevitably be a dilutive acquisition, as it will not be a distress sale.

Watkin Jones plc: A Successful Start to Life on AIM

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Sully8786

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