Amidst a growing sense that property market fears are perhaps being overdone, urban regeneration specialist MJ Gleeson’s (GLE) affordable housing model should be in a position to deliver sector-beating margins over the coming quarters. The group’s full-year results on 26 September should give investors another chance to look under the hood at the £208 million cap following its upbeat 3 July trading update.
A recent note from Liberum maintains that anxiety over mortgage availability, mortgage regulation and base rates has been exaggerated and that a strong investment case remains for a number of stocks within the house building sector including Gleeson. Liberum’s Charlie Campbell does, however, counsel that valuations are unlikely to break out of long-established ranges while interest rates are rising. But Campbell sees upside ‘as the shares are now likely to follow NAV growth over the next year or so, and growing distributions will help drive outperformance,’ he states.
In the 12 months to the end of June 2014, Gleeson Homes sold 561 units; an increase of 38% compared with the previous year’s total of 406. More tellingly for the group’s bottom line, the proportion of units sold or recently acquired also continues to improve with 84% of the units sold from the higher margin sites compared to last year’s 75%.
The increase in sales from these sites, along with the increase in the volume of sales, is substantially improving the profitability of the business unit for the year. The landbank of owned and conditionally purchased plots at 30 June 2014 increased by 31% compared to the prior year, totalling 5,065 plots of which 1,815 have been purchased subject to planning permission. In addition, there are a further 1,600 plots which are in the pipeline to be acquired.
The group’s strategic land division continues to exploit the opportunities created by the strong demand from major house builders for green field residential land in the South of England. Going forward, Gleeson is in a favourable cash position with balances of £13.8 million at the end of June and the group has told investors that it expects to deliver a level of profitability from the business units for the year ending 30 June 2014, significantly ahead of expectations.