Inland Homes (INL:40p), a south-east England-focused housebuilder and brownfield land developer, has reported a bullish interim pre-close trading statement that is completely at odds with the share price de-rating since I updated my 2019 Bargain Shares Portfolio in early February.
Current reservation rates have been resilient, there has been no major change in buying interest or visitor numbers to sites in recent weeks, and the company should achieve 65 legal completions worth £17.5m this month, in line with budgets, from its £47.2m forward order book. Analysts at Panmure Gordon only factored in 177 completions for the whole of the 2020 financial year, so the order book mitigates earnings risk, as does the fact that first-time buyers account for the majority of sales, as reflected in an average selling price of only £250,000.
In any case, partnership housing is Inland’s fastest growing activity, so is more important as it provides solid cash flow of £7m a month across five sites (all open) and insulates the company from any potential slowdown in open market sales. Inland’s blue-chip client base includes several leading UK housing associations, and negotiations are ongoing regarding further partnership opportunities to meet the untapped demand for new affordable homes. Panmure expects partnership housing sales to increase from £63m to £73m this year, a forecast fully supported by a £86m divisional order book. In addition, Inland generates more than £3m of annual income through brownfield activities, including temporary modular housing business 'hugg homes' which are let to local housing authorities.
The balance of Panmure’s full-year revenue estimate of £200m is derived from land sales. Interestingly, Inland’s directors point out that “a number of significant profitable land sales are expected to conclude in the near future”. It could be transformational for the battered share price as it would further de-risk Panmure Gordon’s full-year pre-tax profit and EPS forecasts of £22.7m of 8.9p, respectively. Trading 65 per cent below last reported EPRA net asset value of 113p a share, on 4.5 times forward earnings and offering a 7.8 per cent dividend yield, Inland’s share price should bounce back well above my 57p entry point when the land sales complete. Buy.
TClarke grossly underrated
Nationwide building services contractor T Clarke (CTO:80p) reported the impressive set of annual results I had anticipated (‘TClarke’s investment opportunity’, 2 December 2019), delivering 22 per cent higher EPS of 18.8p and hiking the dividend per share by 10 per cent to 4.4p. The forward order book has increased from £361m to £403m since my article to cover three-quarters of 2020 budgeted revenue, buoyed by work on high tech buildings and data centres.
To date, operations have been unaffected by Covid-19. Importantly, TClarke has a sound balance sheet, boasting net cash of £12.4m, untapped credit facilities of £25m and £19m of additional bonding facilities. Including dividends, the holding is slightly under water since I recommended buying in my December 2018 Alpha Report. A PE ratio of 4 suggests a collapse in earnings for many years to come which is completely at odds with how the company is trading. Buy.
Finally, I highlighted several buying opportunities in articles at the end of last week and also published my latest small-cap Alpha Report.
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