Inland Homes (INL:70p), a £144m market cap south-east of England focused housebuilder and brownfield land developer, continues to de-risk its development pipeline, having just announced the largest land sale in the company’s history.
Inland has entered into a £94.7m contract with A2 Dominion, one of the largest UK housing associations, to develop 357 homes at Inland’s Brooklands College site in Ashford, Middlesex. The deal is split £65m for the construction element, and £29.7m for the land itself, thus allowing the company to recognise land profits while securing a self-funded, cash positive construction contract. A2 Dominion will settle the cash consideration for the land on completion, thus freeing up substantial cash flow for Inland.
This means that Inland has entered into construction contracts, worth over £108m, on land sales with four housing associations to build well over 500 homes. Strategically, it makes commercial sense to do so as selling parcels of consented land from Inland’s land bank of 7,372 plots releases profit and revenue early, the proceeds from which can then be used to reduce debt, and avoid the need to raise financing, and invest in sales and marketing.
The deal also highlights the substantial unrealised value in Inland’s land bank, which has a gross development value (GDV) of £2.2bn and includes 2,218 plots with planning consent, options on 2,750 plots across 29 sites, and planning applications on 2,312 plots across five sites. In the six months to the end of December 2017, Inland sold 338 residential plots for £21.9m and earned an operating profit of £5.9m on them, or almost £65,000 per plot, but this could be a drop in the ocean compared with Inland’s 100-acre site at Wilton Park, Beaconsfield. Plots there could be worth hundreds of thousands of pounds each if planning consent for 350 homes is approved.
I would also flag up that Inland has a strong forward order book and a record 560 homes under construction for private sale, which have a combined GDV of £144m, adding substance to chief executive Stephen Wicks’ view that “within two years Inland will complete the construction of over 1,000 residential homes per annum”.
Importantly, the profits being booked from land sales underpins Inland’s fully diluted EPRA NAV per share of 92.78p, which takes into account £58m of unrealised gains on land holdings worth about 27.5p a share. So, having included the shares in my 2013 Bargain Shares Portfolio at 23p ('How the 2013 Bargain Shares fared', 7 Feb 2014), since when the board has paid out total dividends of 5.52p a share, and last recommended buying at 60p (‘Housebuilders trading updates’ 4 Apr 2018), I feel there is more upside to the 228 per cent gain you have made to date.
Priced on a single-digit PE ratio, offering a prospective dividend yield of 3.1 per cent, trading a third below EPRA NAV estimates, and with the share price on the verge of breaking out above January’s 70.4p resistance level, I rate Inland’s shares a buy.
■ Simon Thompson's new book Successful Stock Picking Strategies was published on 15 March and can be purchased online at www.ypdbooks.com, or by telephoning YPDBooks on 01904 431 213 to place an order. It is being sold through no other source and is priced at £16.95 plus £2.95 postage and packaging.
Simon's second book Stock Picking for Profit has now been reprinted and is available to purchase online at www.ypdbooks.com for £16.95, plus £2.95 postage and packaging, or by telephoning YPDBooks on 01904 431 213 to place an order.
