Inland Homes (INL:78.5p), a leading brownfield developer, housebuilder and partnership housing company with a focus on the south and south-east of England, has reported the bumper pre-close trading update I was anticipating ahead of the release of annual results in January (‘Options for bumper profits’, 24 September 2019).
A key take for me was the 13 per cent increase in the land bank to a record 7,796 plots at the end of September 2019. Over 3,000 plots have planning consent and a further 3,533 plots form part of Inland’s strategic land bank, the majority of which is held under options that are exercisable at a discount to market value. The total land bank has a gross development value (GDV) in excess of £2bn, a healthy indication of the bumper profits to be released when the plots are either developed or sold on to larger housebuilders.
Bearing this in mind, Inland has just bought out its joint venture partner at Cheshunt Lakeside, Hertfordshire, after the local authority granted planning consent to create a new urban village of 1,725 homes and 19,000 square metres of commercial space. That site alone has a GDV of £620m. The directors are currently evaluating their options to develop the site as well as their flagship 100-acre development at Wilton Park, Beaconsfield, which has received formal planning consent for 350 homes with a GDV of £350m.
Inland currently has 889 private homes and 578 partnership homes under construction, and has entered into discussions with a number of build to rent operators to enter deals that would both reduce the company’s borrowings – Inland has net debt of £155m – and release capital to invest back into the business while at the same time further de-risking the forward sales pipeline. Strategically, it makes sense to do so and the directors are guiding shareholders to expect news on this front “early in the new financial year”.
Analysts at Panmure Gordon are holding fire on releasing their upgraded forecasts, but it’s clear to me that there will be a material increase in Inland’s last reported European Public Real Estate Association (EPRA) net asset value (NAV) of £213m (103.6p a share) at the forthcoming annual results. I maintain my view that the Wilton Park and Cheshunt Lakeside flagship developments have scope to create £100m plus of additional value over time for Inland’s shareholders, a sum equating to around 10 per cent of their combined GDV and an eye-catching 50 per cent of the company’s last reported NAV.
| Simon Thompson's 2019 Bargain Shares portfolio performance | ||||||
| Company name | TIDM | Market value | Opening offer price 01.02.19 | Bid price 04.11.19 | Dividends | Percentage change |
| TMT Investments (note one) | TMT | $163m | 250¢ | 580¢ | 20¢ | 140.0% |
| Futura Medical (note two) | FUM | £70m | 14.85p | 34p | 0p | 129.0% |
| Inland | INL | £162m | 57.75p | 78p | 0.85p | 36.5% |
| Ramsdens Holdings | RFX | £63m | 165p | 204p | 4.8p | 26.5% |
| Bloomsbury Publishing | BMY | £196m | 229p | 263p | 6.75p | 17.8% |
| Augmentum Fintech | AUGM | £129m | 102.4p | 110p | 0p | 7.4% |
| Litigation Capital Management | LIT | £83m | 77.5p | 76.6p | 0.28p | -0.8% |
| Jersey Oil & Gas | JOG | £42m | 205p | 192p | 0p | -6.3% |
| Mercia Technologies | MERC | £82m | 29.57p | 27.2p | 0p | -8.0% |
| Driver Group | DRV | £29m | 74p | 54p | 0.5p | -26.4% |
| Average | 31.6% | |||||
| FTSE All-Share Total Return index | 6,852 | 7,542 | 10.1% | |||
| FTSE AIM All-Share Total Return index | 1,023 | 1,010 | -1.3% | |||
| Note 1: Simon advised taking profits on TMT Investments at 580c a share on Monday, 9 September 2019 ('Takeovers, tender offers and taking profits', 9 September 2019). | ||||||
| Note 2: Simon advised taking profits on Futura Medical at 34p a share on Monday, 14 October 2019 ('Bargain Shares: golden opportunities', 14 October 2019). | ||||||
| Source: London Stock Exchange opening offer prices at 8am on 1 February 2019 and bid prices at 10.55am on 4 November 2019. | ||||||
Moreover, the two major planning gains highlight how the company is successfully delivering on its strategy of acquiring quality land in areas of high demand and then adding value by securing planning permission with the aim of realising this value through selective in-house development and/or by providing a turnkey solution for development partners. This has not been lost on investors, which explains why Inland’s shares have generated a total return of 36.5 per cent on an offer-to-bid basis and including dividends since I included them, at 57.75p, in my 2019 Bargain Shares Portfolio.
Interestingly, Inland’s share price is on the cusp of generating a repeat buy signal on a close at 80p or above, and one that would open the door to a run up to the all-time high of 89p dating back to January 2016, and towards my target price of 95p to 100p. So, with the technical and fundamental base highly supportive, Inland’s shares rate a strong buy.
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