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Hazik Siddiqui

Thanks to a strong forward orderbook in the third quarter of 2022, Miller Homes achieved record house completions and EBITDA in the fourth quarter. 

The UK-based homebuilder delivered impressive Q4 22 results on Tuesday (28 March), at a time when mortgage offers were being replaced overnight and chaos reigned in the housing market amid fallout from the mini-Budget. Unlike its peer Keepmoat, the quarter seems to have gone smoothly for Miller, with key metrics surpassing guidance

Management mentioned that supply chain disruption and raw material availability are returning to pre-pandemic levels, and said they expected to reach a “manageable cost inflation” level in FY 23. However, the growing share of affordable housing (lower margins than private sales) could negatively impact FY 23 Average Selling Prices (ASP) and weigh on margins. Affordable housing made up 26% of Miller’s FY 22 completions, and is guided to reach 30% in FY 23.

Over the conference call management guided that so far this year, sales rates — total reservations divided by sales outlets further divided by the number of weeks — have rebounded to 0.60 from a trough of 0.26 in Q4 22. With spring being a strong season for reservations, the rate increased to 0.70 in the first three weeks of March 2023.

Management added that 0.70 should not be seen as a proxy for FY 23 sales rates as reservations are likely to cool in the summer. Sales rates could normalise to 0.55-0.60, which would mean 3,250-3,600 housing units for FY 23 vs 3,970 units sold in FY 22. 

Forward order book of £481m is substantially below £665m as of FY 21, but the orderbook has grown to £690m as of March 2023, thanks to strong spring demand.

Miller Homes is entering FY 23 with lower expectations around forward orderbook and volume, but amid a cautious recovery in UK housing market. The company’s land management strategy (which we discuss below) should help in managing near-term headwinds.

Miller’s ability to optimise inventory during downturns could be seen favorably.

In response to mini-budget induced uncertainty, Miller Homes was quick to cut down on land buying during Q4 22, acquiring 745 new plots versus 1,595 the previous year. This meant net land spend fell to a record low since pandemic related cuts in Q2 20. Controlled land buying in Q2 20 and Q4 22 led to improved cash balances in the respective financial years:

Effective land bank management during downturn scenarios, source: 9fin.com

Despite stepping into 2023 with a lower landbook (13,914 plots as of Q4 22 vs 15,169 in Q4 21), supply capacity looks adequate and near-term house completions would not be significantly impacted by the reduction in land buying. Based on a 2022 run rate, Miller Homes’ current land bank can give house deliveries for another 3.5 years.

Record high completions and cautious land buying saw cash balance reach £189.8m from £100.7m in Q3 22. The high cash balance will likely normalise when Miller Homes resumes its land buying.

Nonetheless, lenders should be pleased to see a liquidity purse of £370m, supported by an undrawn £180m super senior RCF. Management added there are no plans to use cash for a shareholder distribution because the company would need to reinvest the cash into working capital as sales rates recover. 

The £425m 2029 SSNs and €465m 2028 SS FRNs were largely unmoved after Tuesday’s earnings as positive trading got priced in post release of a FY 22 trading update in January. Since the release of the trading update, prices have trended upwards steadily with euros and sterling gaining close to 6.5 and 7 points respectively.

As of writing, the SSNs were indicated at a mid-price of 79.6 (YTW 11.8%) and the FRNs at mid-price of 83.7.

Miller Homes’ Q1 23 results will be released on 30 May 2023

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Miller Homes outperforms in Q4 22, FY 23 volumes to decline

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