Investors who still see some mileage in the housebuilding sector will doubtless warm to the news today that Edinburgh-head quartered Miller Homes plans to join London's Main Market next month.

The decision to launch an initial public offering (IPO), which is expected to raise around £140 million and will entail selling off at least 40% of the company, has been in the works for some time. If all goes to plan the company will command a market value of around £450 million. A £160 million refinancing was completed in March with a majority stake in the builder being taken by US investment house Blackstone.

Among the previous IPO obstacles was Miller's loss-making construction arm, but that was sold in the summer to Galliford Try (GFRD) in a £16.6 million deal.

Development flats

Founded in Edinburgh in 1934, Miller Homes is a top ten national housebuilder by volume of completions in selected regional UK locations. Principal areas include central southern England, the Midlands, across parts of the north and in central Scotland. Significantly, Miller Homes ignores London, where the worst of the perceived house price inflation is biting.

Management is convinced its diversified approach plus a large and well-located strategic land bank places Miller Homes in a strong position amid the busy UK housebuilder market. That implies that the company could be a prime candidate to benefit from recovery in property and land prices across the regions. Demand for new housing continues to grow supported by improving macroeconomic conditions and a mortgage market that is once again offering 95% mortgages to some borrowers.

Going forward, Miller's management sees continued growth in margin and return on capital employed (ROCE) at the housebuilder being supported for two reasons.

First, the group intends to increase the volume of completions in overall term. Secondly, completions from lower margin legacy land, as a percentage of core completions, are expected to continue to decline.

Consequently, management is targeting gross margins of 22% and ROCE in excess of 25% for all new site acquisitions from mid-2013.

A growing consented land bank stood at 8,987 plots as of 30 June while the group's strategic landbank of 16,553 plots on 56 separate sites represents 8.9 years of supply at current levels of output.

In the first half to June this year, Miller produced a £19 million operating profit on sales of nearly £170 million.

'Our distinctive focus and deep knowledge of the regions in which we operate, together with our large and well-located strategic land bank, position Miller Homes to drive strong and sustainable growth and to benefit from the continued recovery in these regional markets,' says Miller Homes CEO Chris Endsor.

Issue Date: 23 Sep 2014