Affordable housebuilder MJ Gleeson (GLE) is in demand as it announces a more generous dividend policy alongside a very strong set of first half results.

Increasing its dividend by nearly 40%, the company is reducing its targeted range of dividend cover from between two and three-times to a 1.75 to 2.75-times range.

Dividend cover is the proportion to which dividends are covered by earnings. If earnings are increasing this should mean higher dividends going forward.

In the six-month period to 31 December 2017 pre-tax profit was up 19.1% to £13.7m with operating profit in the homes division up 44.7% to £12.3m.

MJ Gleeson chief executive Joylon Harrison says he is ‘slightly annoyed’ when Gleeson is placed in the same category as other housebuilders given its distinct model focused on the ‘bottom end of the market’ in the North of England and the Midlands.

INSULATED FROM WIDER HOUSING MARKET

‘We’re looking at the national living wage which went up 30p an hour in April last year,’ Harrison adds. ‘It doesn’t sound like a lot, but it actually computes to £11.25 a week and £562 per year. If you apply a reasonable mortgage multiplier of three-and-a-half times it means you could get a mortgage which is £2,000 higher.’

Alongside its affordable homes business, Gleeson has a South of England focused strategic land operation which progresses land through the planning system.

This performed less well in the first half with operating profit down more than 40% but according to Harrison this is a timing issue and does not reflect any impact from changes announced in the November Budget aimed at preventing the stockpiling of land.

House broker N+1 Singer comments: ‘Trading on 2.0x price to book and a PE (price to earnings) of 12.8x, MJ Gleeson attracts a premium to its broader peers (1.6x and 9.2x respectively).

‘In our view this is fully warranted, given Gleeson’s unique focus, significant growth ambitions and increasingly attractive yield. We consider recent share price weakness a buying opportunity.’

Shares in the company are up 3.5% on Monday at 714p, valuing the housebuilder at £386m.

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Issue Date: 19 Feb 2018