Ireland’s largest homebuilder, Cairn Homes, says it will “fully offset” a 6% rise in construction costs this year as it sees record demand for new homes.
Demand from both the public and private sectors has fueled a huge increase in the backlog, with forward sales rising to 1,600 units from 1,218 at the time of the full-year results in early March.
The orders have a net sales value of over 600 million euros, Cairn said in a trading update on Thursday.
The group enters into two partnerships with government agencies for social and affordable housing.
Cairn said there was inflation in infrastructure, material and labor costs.
“While recognizing that the outlook for construction cost inflation is uncertain, we expect it to remain at elevated levels in the coming months as suppliers move to more dynamic pricing, mainly due to energy cost volatility.
“As such, the company will continue to work with our supply chain partners to achieve sustainable, competitive pricing while maintaining security of supply.”
However, it said the increases in labor and material costs are “fully offset by an improvement in product mix, operational efficiencies and better pricing.”
Cairn expects return on equity (ROE) to reach 11 percent this year, with shareholder returns of at least €115 million through a mix of dividends and share buybacks.
Sales are expected to top €600m this year, based on 1,500 completed new home sales, of which 1,300 have already been completed or sale agreed – up 17 percentage points since early March.
Core residential gross margin is expected to be 21.5 percent, with an operating profit of €100 million expected to deliver an operating margin of 16.5 percent.
Operating cash flow is expected to be €175 million.
Cairn is targeting 5,500 new homes and more than €500 million in operating cash flow over the three-year period to the end of 2024, targeting an ROE of 15 percent.
Cairn Homes shares fell 1.89 percent in Thursday trading on Euronext Dublin to close at €1.04.
Goodbody analyst Shane Carbery called Cairn Homes his “top pick in the UK and Irish housing sector” and said the share price did not “fairly” reflect recent performance.
“We continue to believe that Cairn Homes is best positioned to benefit from Ireland’s fragmented and underserved housing market,” Mr Carbery said in a statement on Thursday.
“The Group continues to make significant progress towards its mid-term volume, margin and return targets. Cairn Homes is able to return a significant amount of cash to shareholders.”
In March, Cairn reported sales of €424 million for 2021, up 62 per cent on 2020, thanks to increased sales and prices. The average selling price for starter houses in 2021 was €350,000 including VAT, around €2,000 more than in 2020.
Gross margin increased by 19.8 percent in 2021, while operating income of EUR 58 million increased by 139 percent compared to 2020.