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Clear targets and a capable management team make this stock a winner
Thursday 30 Sep 2021 Author: Ian Conway

Few firms listed on the UK market can boast a 135-year history, and fewer still can claim to be run by a scion of the founding family.

With its roots in building and civil engineering, during the First World War Henry Boot (BOOT) grew to be a prime contractor on military buildings and hospitals. Today it comprises a group of companies investing in land and property, developing sites, constructing buildings and hiring plant and equipment.

The pandemic and the increase in home working, growing demand for homes and offices that fulfil the need for more space and air, increasing calls for urban and suburban sites that make it easier to get to work and ever-higher levels of online activity are all positive drivers for the firm.

Roughly half of group revenue comes from construction services, equipment rental and the A69 Road Link, just under 40% from property development, both residential and commercial, and the rest from land development.

The firm ended the first half of the year with a land bank capable of delivering more than 92,000 residential homes as well as build-to-rent sites in Sheffield and Manchester and logistics and warehousing sites in Yorkshire, Derbyshire, Lancashire, as well as Enfield and Luton.

The half-year results also showed an 18% rise in revenue to £129 million and a 220% increase in profit to £23 million, ahead of management expectations, thanks to a strong performance in the logistics and warehousing market and capital gains on the sale of investment property.

Chief executive Tim Roberts is clear where he sees the business in a couple of years’ time. Pre-pandemic, the firm generated £50 million of pre-tax profits but it cut back on investment last year. By increasing its capital employed from £300 million to £500 million, and targeting a 12% return, pre-tax profits are set to hit £60 million.

‘We want the targets to be a bit of a stretch, but achievable’, says Roberts, adding ‘Our markets are supportive, and we have the operational capacity’.

Despite scaling up its investments the firm has a solid balance sheet with just £13 million of net debt, and its dividend coverage is conservative to say the least at almost six times at the interim stage. The final dividend will be higher, but coverage will still be around three times.

Other attractions, on top of its strong business franchise, good order visibility, financial solidity and clear earnings guidance, are the fact the founding family has a major (46%) stake in the business and its strong record on social and corporate governance issues.

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