Assessment of a Construction or Housebuilder Firm and Development Decision Making

Assessment of Suitability of the Construction or Housebuilder Firm

The proposed development will take place on a site in a new neighbourhood called East of Harry Stoke (EoHS) situated on the urban edge of north Bristol near the University of the West of England and close to the M32 and
M4 motorways. This site is mostly owned by Crest Nicholson and South Gloucestershire Council who intend to deliver about 2000 houses; while some parts are owned by other private landowners. MF4BE has purchased
3.125 hectares of the EoHS land from the private landowners for £3.5 million per hectare to enable it to carry out this development. MF4BE plans to develop the site to provide a mix of housing (including family housing,
flats and sheltered accommodation), together with commercial uses in future and also provide some open spaces. In keeping with this, the average dwelling per hectare (density) for this development should NOT exceed 32.

To achieve this undertaking, MF4BE is considering engaging a reputable construction company or housebuilder from a list of firms that have expressed interest. MF4BE is also considering taking a stake in a construction company or housebuilder as part of its long-term expansion goals of accessing other income.
You are required to provide a report that will contain the following:

Assessment of suitability of the construction or housebuilder firm (1800 words)
You are required to obtain the most recently published “FULL ANNUAL REPORT” for a construction company or housebuilder of your choice. The annual report must be for a UK PLC that is listed on the UK Stock Exchange and must be in the English language.

 

You are required to assess the suitability of the chosen construction company or housebuilder, both as a building contractor and a potential investment, by preparing a report on the financial “health” of this company.
This should be done by making use of financial ratios as revealed or implied by the most recent FULL annual report and its financial statements. Your report should be clear and succinct as if prepared for your boss (with no
accounting knowledge) who is a very busy person with limited time to read it before an important meeting. All relevant information in the annual report should be used as necessary.

The detailed calculations of all ratios must be shown in FULL and must be attached separately as part of the Appendices either in Microsoft Word or Microsoft Excel (Note: Please only restrict yourself to the ratios
covered in class). A complete copy of the FULL ANNUAL REPORT must be attached as a separate file in the submission. Please DO NOT use the interim (half-year) annual report. Managerial Finance for the Built Environment 2021-22

The full annual report can be obtained online from the respective company’s website or by carrying out a search using your preferred internet “search engine". You can use FAME (a database accessible through the UWE Library webpage) to check that the company is a PLC. Note that FAME should only be used to compare the ratios but all the ratios should be calculated manually.

Development decision making (1200 words)
You are required to propose a choice of two (2) housing schemes on the site for MF4BE to pick from. Decide on the total number of residential dwellings proposed for this site and the housing mix and types (e.g. 1
bedroom, 2 bedrooms etc). Note: a minimum of three house types is required for both proposed schemes.

 

a. Undertake breakeven analyses (charts included) based on only the development of houses on both of the proposed schemes. Based on the breakeven analyses, advise MF4BE which of the two schemes is the best.
Market information can be gleaned from a variety of databases e.g. “Rightmove” that will provide reasonable comparables. Cost information can be obtained from sources such as the Building Cost Information Service
(BCIS) or Spon’s.  (18 marks)

b. With the use of the information from (a) above, advise MF4BE on the viability of the two proposed schemes by carrying out capital budgeting using the Return of Capital Employed (ROCE), Payback Period (PP), Net
Present Value (NPV) and Internal Rate of Return (IRR). Discuss which of these appraisal methods IS the most suitable for this task and advise which of the two proposed schemes is the best.
Make appropriate assumptions regarding the timing of the construction and sale of the units.  (22 marks)