BULL POINTS:
■ Strong sales set to boost profits
■ Shares trade well below net asset value
■ Links with public sector
■ Dividend to be reinstated
BEAR POINTS:
■ Post-election housing policy unknown
■ What happens after the Olympics
Despite its name, Telford Homes builds homes in east London and that focus, which once took it close to the brink of oblivion, now helps to explain the rapid turnaround in its fortunes
The stronger and faster than anywhere else in the UK, helped by the weak pound, which has tempted wealthy foreigners to snap up buy-to-let properties. Last year, Telford's management joined other London-based volume housebuilders and got on the Far East exhibitions trail, presenting to investors in Hong Kong, Singapore and beyond. And the result? A trading update released last week promised that profits for the financial year just ended will be "materially ahead of market expectations".
| IC TIP RATING |
|---|
| Tip style: VALUE |
| Risk rating: MEDIUM |
| Timescale: SHORT-TERM |
Telford's foreign sales drive means it has ended the year with 389 completions (up 11 per cent year-on-year) and has seen the return of sales off-plan (which has enabled new phases of developments to start construction). This has helped the company to deal with the problem of the off-plan sales it struck in the heat of the 2007 market which failed to complete because mortgage offers evaporated. And better cash flow, plus a share placing, means the company cut its net debt from £107m to £37m during the year.
The improved performance means Telford is likely to resume dividend payments. Broker Shore Capital, which advises Telford, expects that the payout will be 1.5p for 2009-10, though its forecast for 2010-11 - 1.6p - may well be upgraded.
Founded by three former directors of Aim-quoted housebuilder , Telford has built up a good track record in developing affordable housing, and has close links with various public sector organisations. It has secured £73m in grant funding from the government's Homes and Communities Agency (HCA), of which £47m has been received so far. Although the outlook for initiatives such as and Kickstart funding beyond the general election is unclear, Telford's links with east London's housing associations offer great potential.
| TELFORD HOMES (TEF) | ||||
|---|---|---|---|---|
| ORD PRICE: | 101p | MARKET VALUE: | £50.3m | |
| TOUCH: | 97-101p | 12M HIGH / LOW: | 112p | 37p |
| DIVIDEND YIELD: | 1.5% | PE RATIO: | 8 | |
| NET ASSET VALUE: | 135p | NET DEBT: | See text | |
| Year to 31 Mar | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2006 | 79 | 10.0 | 23.8 | 7.0 |
| 2007 | 104 | 13.5 | 29.4 | 8.9 |
| 2008 | 97 | 6.5 | 12.2 | 10.0 |
| 2009 | 107 | 4.3 | 8.1 | nil |
| 2010* | 146 | 6.9 | 12.6 | 1.5 |
| % change | +37 | – | – | – |
NMS: 7,500 MARKET MAKERS: 3 BETA: 1.2 * Shore Capital forecasts (Profits & earnings not comparable) | ||||
February's £7.2m share placing (to which Telford's directors heavily subscribed) will enable the group to develop private housing on two existing sites where social housing is already under way, and invest in four future development opportunities with council estate regenerator Eastend Homes, one of many social landlords that Telford has a relationship with. Deals like these will help to address the shortfall in its medium-term development pipeline.
As well as a strength, Telford's focus on east London could be a weakness. Proximity to the main site of the 2012 Olympic Games has boosted the area's appeal to foreign investors. But, after the games, the large-scale conversion of athletes' accommodation to residential flats could flood the market, hitting the value of Telford's homes.
