Inland Homes (INL:63p), a south-east of England-focused housebuilder and brownfield land developer, is on course to deliver the 6 per cent increase in full-year pre-tax profits and earnings per share (EPS) to £20.5m and 7.7p, respectively, that analysts predict in the 12 months to the end of June 2019. Last week’s 30 per cent hike in the company’s interim dividend per share to 0.8p is an indication of the directors’ confidence of hitting those profit targets, and suggests that the 2.6p a share annual dividend forecast by house broker Panmure Gordon is on the money.
Half year results revealed a slight increase in pre-tax profits to £5.5m, but with a record 1,047 homes for sale under construction, including 193 in joint ventures, and a further 496 homes for Partnership Housing, then the directors expect residential sales to rise from 144 units in the first half to 243 units in the second half, of which Partnership Homes should account for two thirds of the total. Inland has been sensibly de-risking its future earnings by entering into deals with housing associations and local authorities. This means that it can recognise land profits early while securing a self-funded, cash-positive and profitable construction contract that avoids the need to raise financing, or to invest in sales and marketing.
The residential partnership construction order book has more than trebled to £140m since the end of 2017 and the directors are in the advanced stages of an onward sale of a site in Dagenham, east London that has planning permission for the development of 116 affordable homes and 209 open market units. Inland has de-risked its revenue stream further by managing sites on behalf of third parties, so receives chunky management fees in return. This activity accounted for 20 per cent of first half revenue of £51m.
Importantly, the company is targeting the affordable end of the private sale market as the average selling price was only £238,000 on the 81 private homes delivered in the first half. This means that stamp duty costs are minimal and over half of sales are from buyers using the government’s Help to Buy housing scheme which makes purchases more affordable, so is supportive of demand.
| 2019 Bargain Shares portfolio performance | ||||||
| Company name | TIDM | Market | Opening offer price on 01.02.19 | Latest bid price 11.03.19 | Dividends | Percentage change |
| TMT Investments | TMT | Aim | 250¢ | 362¢ | 0p | 44.8% |
| Mercia Technologies | MERC | Aim | 29.57p | 38.0p | 0p | 28.5% |
| Jersey Oil & Gas | JOG | Aim | 205p | 225p | 0p | 9.8% |
| Inland | INL | Aim | 57.75p | 62p | 0p | 7.4% |
| Ramsdens Holdings | RFX | Aim | 165p | 180p | 0p | 9.1% |
| Augmentum Fintech | AUGM | Main | 102.4p | 108p | 0p | 5.5% |
| Bloomsbury Publishing | BMY | Main | 229p | 235p | 0p | 2.6% |
| Futura Medical | FUM | Aim | 14.85p | 15p | 0p | 1.0% |
| Litigation Capital Management | LIT | Aim | 77.5p | 78p | 0p | 0.6% |
| Driver Group | DRV | Aim | 74p | 50p | 0.5p | -31.8% |
| Average | 7.8% | |||||
| FTSE All-Share Total Return index | 6,852 | 7,036 | 2.7% | |||
| FTSE AIM All-Share Total Return index | 1,023 | 1,017 | -0.6% | |||
| Source: London Stock Exchange | ||||||
On the land development side, the company owns 7,291 plots of which 28 per cent have planning consent, 25 per cent have had planning applications submitted, 12 per cent are in the pre-application stage and 33 per cent are strategic sites controlled by options exercisable at a discount to market value. Inland reports strong demand for sites with planning consent, suggesting another healthy contribution from land sales in the annual results.
Trading on a forward PE ratio of 8, offering a prospective dividend yield of 4 per cent and priced on a 38 per cent discount to end December 2018 EPRA net asset value of 103p, I continue to rate Inland’s shares a buy, having included them at 57.75p in my 2019 Bargain Share Portfolio. Buy.
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