Housebuilder Abbey forecasts profit dip as margins squeezed

Dublin-listed housebuilder Abbey forecast on Monday that its operating profit for the year to the end of April is set come in lower than €58.5 million posted for the previous year, as margins came under pressure even as sales rose.

The company, which is 81.9 per cent owned by the family of chairman Charles Gallagher, also said that "this trend of falling margins seems set to continue in the current year", even though its advance sales are described as "good".

Abbey completed 579 house sales in its recently-ended financial year, down from 606 for the prior 12 months.

The latest year's sales were made up of 511 units in the United Kingdom, 36 in Ireland and seven in Czech Republic. The Irish unit sales were less than half the level it recorded for the previous year.

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“While volumes at Abbey in fiscal year 2019 have been below our estimates, a better-than-forecast average selling price has delivered revenue that is broadly in line with our estimates,” said Davy analyst Colin Sheridan.

Stockpiling

UK housebuilders, including Persimmon and Taylor Wimpey, have warned in recent weeks about rising building costs, mainly as industry players engage in Brexit-related stockpiling of materials. Taylor Wimpey, the third-largest company in the sector in the UK, said late last month that it now expects construction costs to rise 5 per cent this year compared to an earlier assumption of a rise of between 3 and 4 per cent.

In Ireland, the Construction Industry Federation (CIF) estimates that the cost of building grew by almost 8 per cent last year and will increase by a further 6.5 per cent in 2019, fuelled by shortages in labour and rising wages. However, listed housebuilders Cairn Homes and Glenveagh Properties have said that they have managed to keep their build cost inflation figures contained.

Davy had already estimated that Abbey would see its profit margin shrink to 22.2 per cent from 26.8 per cent for the previous year. It has also pencilled in a further contraction in the margin to 20.8 per cent this year.

Abbey posted €58.5 million of operation profit in the year to April 2018 on turnover of €218.5 million. The company is due to publish full-year results in the week beginning July 8th.