21st Aug 2024 11:41
(Alliance News) - Forecasts for Watkin Jones PLC were slashed on Wednesday after the firm warned full-year profit will be lower than expected, reflecting slower market activity in the summer.
This was "principally due to the continued uncertainty over the pace of interest rate cuts", the London-based student accommodation developer and manager said in a statement.
"As such we believe it is now unlikely that we will close any further transactions before the financial year end," Watkin Jones added.
Watkin Jones said that, while results for the financial year to September 30 will be lower than previously anticipated, they are expected to show material improvement in financial 2024, with adjusted operating profit currently expected to be between GBP10 million and GBP12 million compared to just GBP200,000 million a year prior.
In May, the company had forecast adjusted operating profit of at least GBP15 million.
In response, shares in Watkin Jones lost 30% to 35.75 pence each in London on Tuesday.
Watkin Jones said the lower number of transactions in financial 2024 will hurt results in financial 2025 as well.
This is because the schemes will not contribute to revenue in future periods until they are forward sold, the firm explained.
As a result, Watkin Jones does not currently expect adjusted operating profit in financial 2025 to be higher than that reached in the current financial year.
In addition, the company said while its "robust" net cash position provides it with a strong financial underpin for its committed spending requirements, it is a limiting factor on the extent to which it can further develop the pipeline.
In light of this, Watkin Jones said it is undertaking a review of options to enhance its medium and longer term funding position.
Peel Hunt analyst Clyde Lewis cut financial 2024 underlying pretax profit forecasts by 42% to GBP7.5 million from GBP13 million and for the following year to just GBP3.5 million from GBP20.5 million. Operating profit for the two years is seen at GBP10 million and GBP6 million respectively.
Given the downgrades, Lewis slashed his price target on Watkin Jones shares to 47 pence from 85p, which equates to a 10% discount to the tangible net asset value for September 2024.
"In addition, we moving our recommendation back to hold from buy, given the uncertainty for [financial 2025] until we see progress on new deals."
Jefferies cut its price target to 35.60p from 50p before. It too has a 'hold' rating on Watkin Jones.
"Until there is greater clarity on the 'alterative transaction structures' management are exploring, confidence in the upside potential for investors may remain constrained," the broker suggested.
Jefferies lowered financial 2024 adjusted earnings before interest and tax forecast to GBP10.5 million from GBP15 million. For 2025, the broker cut its forecast to GBP7.2 million from GBP23.6 million.
By Jeremy Cutler, Alliance News reporter
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