The company’s move to EPRA accounting not only revealed substantial hidden value in its land holdings in the interim results posted yesterday, but Inland enhanced shareholder value over and above the gains stated due to a change in accounting treatment of its land holdings. In fact, analyst John Cahill at brokerage Stifel Europe estimates that EPRA net asset value per share actually increased from 77p at the June 2015 year-end to 84.4p at the end of December 2015, a rise of 12 per cent. IFRS net asset value was 44p a share at the end of June 2015, rising to 53p at the end of December 2015, highlighting the value creation in the period.
Part of this reflects a £13.9m revaluation of 76 houses at Wilton Park, a former MoD site in affluent Beaconsfield, Buckinghamshire. These are now held in the books at £40m, or £526,000 each. Inland has applied for planning permission to build more than 300 houses on the site and 21,000 sq ft of commercial space, so there is a good chance of significantly higher revaluation gains and profits to be made from this site alone.
Under the leadership of chief executive Stephen Wicks, the company is proving adept at realising value in its land bank. In the latest six month trading period, Inland disposed of 244 plots across three sites for a total consideration of £21.5m, and so crystallising a £6.3m operating profit. This compensated for fewer completions in its house building arm, albeit the move to higher priced property meant that the 93 completions delivered pre-tax profit of £7m compared to £8.7m on 193 completions in the same six-month period in 2014. So, the combination of the aforementioned £14m revaluation surplus on the Wilton Park homes, and the absence of land sales in the first half of the 2014/15 financial year, helps explain why Inland’s pre-tax profits rocketed from £5.7m to £21.5m in the six months to end December 2015.
Strong prospects
More importantly, prospects for both housebuilding and land sales look well underpinned. Indeed, chairman Terry Roydon notes that “demand for new homes outside of central London remains as high as we have ever seen. Since early 2014, there has been a shift in the type of dwelling being built with developments now including more apartments than houses. We believe this reflects the strengthening confidence of both funders and housebuilders to take on higher density projects”. To exploit this positive market environment, construction is underway on 208 units across seven projects in the South East of England, and work is due to commence in the near future on a further 111 plots. Inland has forward sales of residential homes worth £20.9m.
In terms of the development pipeline, Inland has won consent for a 95 residential unit development in West Acton, London with a gross development value (GDV) of £50m; it has signed an agreement with Southampton City Council as development partner for 380 homes on an 8.9 acre site known as Chapel Riverside with a GDV of £110m; and has put in a planning application for 400 homes on its site at Aston Clinton in Buckinghamshire.
Mr Roydon adds that “demand for land with planning consent continues to be strong in our areas of operation and we have noticed an increase in land values, which implies a shortage of supply and continuing demand from housebuilders for good, sustainable, suburban locations outside of central London”. The company plans to take advantage of these market conditions and, whilst the timing of land sales can never be predicted with absolute certainty, investors can expect “sales of plots to be higher in the second half of the financial year than in the first half”. Bearing this in mind, Inland has raised its land bank to a record high of 5,672 plots, of which about 20 per cent have been granted planning consent, having added 833 plots in the six month period.
The bottom line is that the company looks set to achieve full-year pre-tax profits approaching the record of £34m it made in the previous financial year, and with significant cash inflows from land sales and completions, then expect net debt of £54.6m, equating to a third of EPRA net asset value of £170m, to fall sharply between now and the June 2016 financial year-end.
Clearly, the board are confident. Having hiked the interim payout per share by a third to 0.4p, Stifel Europe’s estimate of a 10 per cent increase in the full-year payout to 1.1p is looking very conservative. I also feel that unless the south eastern housing market outside London cools dramatically, then the odds favour the shares re-rating towards analysts’ 12-month forward EPRA net asset value forecast of 102p. In the circumstances, having first recommended buying the shares at 23.5p ('How the 2013 Bargain shares fared, 7 Feb 2014), I feel that they are well worth holding onto at 86p and have a new target price of 95p. Run profits.
Please note that I have published four columns today, six so far this week, and 15 since Monday last week, all of which are listed below. I am currently working my way through a large number of results announcements from companies on my watchlist. I will endeavour to update my views as soon as possible.
MORE FROM SIMON THOMPSON...
I have written articles on the following companies recently:
■ Plethora Solutions: Take profits at HK$0.079 ('On the takeover trail', 14 March 2016)
■ Somero Enterprises: Buy at 150p; target 185p ('A solid buy', 15 March 2016)
■ 32Red: Run profits at 150p ('32Red in the money, 15 March 2016)
■ Communisis: Sell at 44p ('Patience running short at Communisis', 15 March 2016)
■ Global Energy Development: Sell at 27p ('Global Energy plays waiting game', 15 March 2016)
■ Raven Russia: Sell at 30p ('Raven Russia battens down the hatches', 15 March 2016)
■ Stadium: Buy at 122p, new target price 150p ('Switch on for bumper gains', 16 March 2016)
■ French Connection: Buy at 42.75p ('Return to profitability looms for chic operator', 16 March 2016)
■ Fairpoint: Run profits at 159p ('Fairpoints to make', 17 March 2016)
■ Netplay TV: Buy at 10p ('Netplay's shares spin higher', 21 March 2016)
■ Satellite Solutions Worldwide: Buy at 5.5p, target 9p to 10p ('Blue sky tech play', 21 March 2016)
■ Miton: Buy at 30.5p, new target 38p (‘Riding earnings upgrades’, 22 March 2016)
■ Inland: Run profits at 86p, new target 95p (‘Valuation surge boosts Inland’, 22 March 2016)
■ Pittards: Crystallise loss at 71p (‘Subdued demand hits Pittards’, 22 March 2016)
■ French Connection: Buy at 43p ('Stakebuilding gathers pace at French Connection', 22 March 2016)
■ Simon Thompson's book Stock Picking for Profit can be purchased online at www.ypdbooks.com, or by telephoning YPDBooks on 01904 431 213 and is being sold through no other source. It is priced at £14.99, plus £2.95 postage and packaging. Simon has published an article outlining the content: 'Secrets to successful stockpicking
