With strong margin growth and forward visibility stretching all the way out to 2017, Housebuilder Telford's (TEF:AIM) preliminary results for the year to 31 March paint the picture of a company in rude health capitalising on a recovering market.
Shares in the £170.3 million cap add 1.5% to 295.25p after reporting a 113% rise in pre-tax profit to £19.2 million which, says Telford, represents an increase of over 500% over the course of the last two financial years. We flagged the likely upbeat figures in Shares last month.
Margin growth has been key to surging profits and with operating margin's currently standing at 17.1%, last year's 9.7% looks positively anaemic by comparison. But while stretching the margins have proved beneficial, earnings visibility going forward is creating a stable and predictable flow of revenue on a horizon that stretches out to 2017.
Telford points to forward sales of 98% in expected open market completions for the year to March 2015. This remains high in 2016 with over 70% sold and even out 2017 when over a quarter of forward sales are already accounted for. All of which greatly enhances the group's ability to control risk, enhance profit and cash flow visibility.
London buoyancy accounts for a large portion of this upside with contracts exchanged for the sale of 515 open market properties in the year and with over £70 million of apartments sold at Stratford Central, E15 over the last four weeks, strong current trading in the south-east looks set to continue for a group which has shown itself adept at operating in parts of the capital where demand exceeds supply and where people want to live and more crucially, where they can afford to live. And of course, in a market where concerns about government intervention are widespread and growing, investors can also take sustenance from Telford's complete lack of dependence on these schemes to bolster revenues as all sales have been secured without assistance from the 'Help to Buy' initiative or any other government backed mortgage scheme.
Telford expects pre-tax profit to double again by 31 March 2018 with a cumulative total of more than £120 million anticipated over the next four financial years and the group's proposed final dividend of 5.1p brings the total to 8.8p for the year, an increase of 83%. Cash balances of nearly £33 million and headroom of over £90 million in its banking facility put the group in a strong position to construct existing developments and further grow the development pipeline.