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Slow start for Mears

Mears Group is hoping for a busier second-half, after government social housing changes lag on first-half growth.
August 18, 2015

Social housing contractor Mears Group (MER) experienced a quiet start to the year - a lag effect of government changes to social housing funding, which came into force in 2012. The changes meant that some landlords delayed tendering social housing maintenance work. This is reflected in the group order book, which fell to £3.2bn from £3.7bn a year earlier. The group did, however, feel the benefits of a shift towards higher-margin housing management work, including contracts from the Morrison Facilities Services business that was acquired last year. So despite dwindling maintenance contracts, Mears still managed to drive a slight increase in cash profits to £23.4m.

IC TIP: Hold at 406p

The group's core social housing division won £185m in new contracts during the first-half. A greater proportion of these were for housing management services, which delivers an average margin of 10 per cent. This helped boost the business's overall margins by 80 basis points to 5 per cent.

However, Mears' care division fared less well. Management blames a lack of funding for social care, as well as a challenging recruitment environment for care workers. Operating margins for the care division slumped to 4.6 per cent from 7.8 per cent at the 2014 half year. The division pulled in contract wins amounting to £35m - nearly half the figure from a year earlier.

Broker Investec Securities expects adjusted EPS of 27.5p this year, down from 32.2p in 2014

MEARS GROUP (MER)

ORD PRICE:406pMARKET VALUE:£413m
TOUCH:405.5-407p12-MONTH HIGH:497pLOW: 355p
DIVIDEND YIELD:2.5%PE RATIO:15
NET ASSET VALUE:198p*NET DEBT:2%

Half-year to 30 JuneTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201442814.09.92.85
201543014.711.33.10
% change0.4+5+14+9

Ex-div:15 Oct

Payment:03 Nov

*Includes intangible assets of £227m, or 223p a share