Housebuilders are on a roll at the moment. And while Inland Homes (INL) is a strong performer, the share price seems to have missed the bus recently, having fallen nearly 5 per cent since the start of the year, not helped by a rather unfortunate and public spat over a pub site in Amersham. So, now might be a good time to reload before the company releases what are expected to be bumper profits next month.
- Shares are cheaply rated
- Land valued at cost
- Housing output growing rapidly
- Extensive pipeline of building opportunities
- Modest dividend payout
- Planning process still very slow
Inland's business model is simple. It buys up derelict land, brings it through the planning process and either sells it 'oven ready' to other housebuilders or builds homes on it itself. The group also embraces an innovative approach to funding using joint venture partners. This is an effective way of boosting the capital it has available to accelerate its build rate. At the end of 2014 it secured a joint venture with Christian Candy's CPC Group to buy derelict land for development. Under the terms of the joint venture, CPC will contribute 80 per cent of the capital required, with Inland putting in just 20 per cent. Inland will act as the operator for the joint venture, which will concentrate on buying sites in and around London.
Veteran chief executive Stephen Wickes has already outlined plans to boost housing completions to 500 a year. And progress towards that goal has been impressive. It sold just nine homes in 2011-12, but this increased to 114 units in the year to June 2014, and then between 1 July and 1 December 2014 this rose to 161 private housing completions. These generated gross revenue of £38.4m, while forward sales stand at £30.2m. And at the group's flagship Drayton Garden Village development in London, negotiations are at an advanced stage with an institutional purchaser for the sale of 205 residential units for private rental.
| INLAND HOMES (INL) | ||||
|---|---|---|---|---|
| ORD PRICE: | 57p | MARKET VALUE: | £116m | |
| TOUCH: | 56-57p | 12-month HIGH: | 63p | LOW: 43p |
| FWD DIVIDEND YIELD: | 1.3% | FWD PE RATIO: | 11 | |
| NET ASSET VALUE: | 32p | NET DEBT: | 45% | |
| Year to 30 Jun | Turnover (£m) | Pre-tax profit (£m)* | Earnings per share (p)* | Dividend per share (p) |
|---|---|---|---|---|
| 2012 | 6.10 | 1.6 | 0.4 | 0.07 |
| 2013 | 31.1 | 5.2 | 2.0 | 0.27 |
| 2014 | 39.8 | 8.6 | 2.7 | 0.6 |
| 2015* | 70.6 | 12.0 | 4.4 | 0.67 |
| 2016* | 78.5 | 14.0 | 5.2 | 0.75 |
| % change | +12 | +17 | +18 | +12 |
Normal market size: 7,500 Market makers: 8 Beta: *WH Ireland forecasts, adjusted PTP and EPS figures | ||||
Elsewhere, a 3.6-acre site has been acquired from National Grid to build around 225 residential units and 30,000 square feet (sq ft) of commercial space, while another site in Southall will accommodate around 50 houses. All in all, Inland has planning applications submitted for 545 residential units and 7,700 sq ft of commercial space and, since July, consent or resolutions to grant consent have been secured on five sites for 393 houses and 205,000 sq ft of commercial space. On top of this, representations and pre-application submissions are in progress for the delivery of up to nearly 2,400 homes. The planning process can be torturous, however, and can put a major brake on the pace of accelerated growth.
That slow planning process means it's essential to accumulate a decent land bank, and Inland currently has over 4,000 plots for potential development, which is up nearly 60 per cent from a year earlier. Inland's real value is in the potential value of its development pipeline. This embedded value comes from the fact that its land assets are booked at cost. And since these are acquired at relatively low cost, there is significant value yet to be crystallised. In fact, analysts at WH Ireland reckon that a sum-of-the parts valuation would equate to a share price of about 105p. The current share price would have to nearly double to meet this.
Inland started paying dividends in 2012, but the payout is still modest, with the company instead using its capital to fund further acquisitions, although it's fair to add that the dividend in the year to June 2014 was more than doubled.
