If England's housing market is set to stall, then shares in Inland Homes (INL) are not attractive. We don't think that's likely, especially as mortgages are as cheap as they have ever been, while a raft of government incentives have made it less difficult to reach the first rung of the housing ladder. Meanwhile, Inland Homes has underlying merits that could make it a resilient performer anyway.
- Shares trade far below net asset value
- Strong order book
- Significant land bank
- Rising rental income
- Delays in some completions
- Hardly a yield stock
The company's original business model focused on buying brownfield sites, pushing them through the planning process and selling them to hungry housebuilders. This is still a key source of revenue, but Inland now builds houses for itself as part of a more flexible business model. So it may sell all of a consented site or just part of it, while the use of partners helps to reduce the burden on capital spending.
This capital-light approach extends to increasing the land bank. As well as holding a record 6,552 plots in its consented land bank, Inland also has 334 acres spread over 20 sites that are usually located next to existing housing, where the chance of gaining consent is often good. These sites are controlled through options, with an exercise price often 30 per cent below the market value.
| INLAND HOMES (INL) | ||||
|---|---|---|---|---|
| ORD PRICE: | 63p | MARKET VALUE: | £127m | |
| TOUCH: | 61.5-63p | 12-MONTH HIGH: | 89p | LOW: 46p |
| FORWARD DIVIDEND YIELD: | 1.9% | FORWARD PE RATIO: | 10 | |
| INVESTMENT PROPERTIES: | £48.1m | NET DEBT: | 38% | |
| Year to 30 Jun | Net asset value (p) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2012 | 27.0 | 1.6 | 0.4 | 0.07 |
| 2013 | 28.0 | 5.2 | 2.0 | 0.27 |
| 2014 | 29.6 | 9.6 | 3.5 | 0.60 |
| 2015 | 77.0 | 34.0 | 14.7 | 1.00 |
| 2016* | 93.0 | 15.8 | 6.6 | 1.20 |
| % change | +21 | - | - | +20 |
Normal market size: 15,000 Market makers: 6 Beta: 1.1 *Stifel forecasts (profits & EPS not comparable with historic figures) | ||||
Headline profits can be a bit variable as the timing on gaining consent and selling land is always uncertain. A better picture of the underlying value is the land bank, where Inland currently has planning applications submitted on 1,268 plots. These are on the books at cost and increase in value when consent is granted. There are also another 1,225 plots with planning consent or a resolution to grant permission subject to securing a satisfactory Section 106 agreement, which covers additional requirements that builders have to agree upon (such as upgraded access, new roads or schools). In a recent development, Inland announced its intention to jointly purchase the site of Tesco's former headquarters in Cheshunt with the potential to build 1,000 homes.
Inland also has 315 homes under construction with an order book worth £23.4m; further schemes are expected to come on stream later this year. However, one of its contractors, working on four development sites, went bust and, while Inland has now taken control of all construction activity, there will be a delay on some completions.
There is also an increasingly lucrative revenue stream generated by leasing out land and houses built. Rental income is now at a record £2.3m, and Inland recently secured a 15-year lease with inflation-linked rent reviews on a site Leighton Buzzard with Co-operative Food as the main tenant.
