Social housing company Mears (MER) has been hit by changes to the government's welfare and housing policy. The social housing division clocked up £135m of new contract awards in the first half, down 43 per cent on the same period last year. The sharp decline was not due to the group winning fewer of the contracts it bid for - at 35 per cent, the win rate was actually a tad higher than a year ago - but is a lag effect of government policy changes made back in 2012.
Management tells us that the changes have created "some confusion" amongst social housing landlords. As a result, work that should have come up for tender this year has been pushed back into 2015. There was one silver lining to all this: starting up new contracts depresses profitability, so the quieter spell helped boost the social housing division's operating margin by 50 basis points.
That margin uplift helped transform a lacklustre top-line performance into decent bottom-line gains. Adjusted earnings per share were up 17 per cent to 14.3p. Mears says it still expects full-year earnings to be in line with previous guidance, despite the delays in new tender opportunities. Investec expects full-year earnings per share of 31.6p (from 30.1p in 2013).
| MEARS (MER) | ||||
|---|---|---|---|---|
| ORD PRICE: | 490p | MARKET VALUE: | £495m | |
| TOUCH: | 489-490p | 12-MONTH HIGH: | 540p | LOW: 399p |
| DIVIDEND YIELD: | 1.9% | PE RATIO: | 99 | |
| NET ASSET VALUE: | 184p* | NET CASH: | £2.7m | |
| Half-year to 30 Jun | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2013 | 439 | 5.4 | 3.7 | 2.50 |
| 2014 | 428 | 14.0 | 9.9 | 2.85 |
| % change | -3 | +158 | +166 | +14 |
Ex-div: 15 Oct Payment: 3 Nov *Includes intangible assets of £191m, or 189p a share | ||||
