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Telford's exciting pipeline

With nearly all of sales for the year to March 2016 already in the bag, Telford should remain a strong performer, even if profits become a little more lumpy.
May 27, 2015

The vibrant state of the London housing market was on full show in full-year results from east and north London builder Telford Homes (TEF). Pre-tax profits came in ahead of market expectations at £25.1m - up almost 10-fold in the past four years.

IC TIP: Buy at 472p

Management still expects to achieve pre-tax profits of around £40m by March 2018, but admits that they will not show straight-line growth. That's mainly because planning delays will push some completions scheduled for the year to March 2017 into the following year. A moderation in house price inflation, together with higher labour costs, will also weigh on the gross margin. This was 32.4 per cent for the year in review, but is expected to fall back towards a targeted 24 per cent.

Demand for property close to London boosted the number of private units sold by 28 per cent to 661, with a further 105 sold since 31 March. Around 95 per cent of projected sales for the year to 31 March 2016 have already been presold. The value of total forward sales rose 61 per cent to £550m -more than three times current annual revenue - while the development pipeline of future revenues now stands at £1.07bn, up 70 per cent in the past two years. Demand remains extremely brisk. At the launch of Manhattan Plaza, close to Canary Wharf, 71 of the 120 apartments on offer were sold in three weekends, mainly to overseas buyers. The average price of open-market sales rose from £400,000 to £459,000.

Securing forward sales has served to boost cash flow, as Telford takes a 10 per cent deposit on exchange of contracts and a further 10 per cent after 12 months if the sale is more than two years ahead of completion. This provided working capital, with total deposits rising from £45.3m to £63.7m. However, significant investment in land and work in progress turned the previous year's £4.8m net cash position into net debt of £55.3m.

Analysts at Shore Capital are forecasting pre-tax profits for the year to March 2016 of £30.8m, with EPS of 40.6p.

TELFORD HOMES (TEF)
ORD PRICE:472pMARKET VALUE:£284m
TOUCH:472-474p12-MONTH HIGH:495pLOW: 260p
DIVIDEND YIELD:2.4%PE RATIO:14
NET ASSET VALUE:200pNET DEBT:46%

Year to 31 MarTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20111213.04.82.5
20121243.14.73
20131429.014.34.8
201414119.226.48.8
201517325.133.211.1
% change+23+31+26+26

Ex-div: 18 Jun

Payment: 17 Jul