- MJ Gleeson builds quality, affordable homes for which the long-term demand dynamics are attractive
- The company aims to build 2,000 homes by fiscal year 2022
- It expects its full-year results to be ahead of market expectations
Chris McVey, co-manager of FP Octopus UK Multi Cap Income Fund (GB00BG47Q663), explains why he invests in housebuilder MJ Gleeson (GLE).
“We have held MJ Gleeson since 2017, and were attracted to the business by its unique market positioning, fantastic customer economics and obvious social benefits.
“There are currently two parts to the business, however it is the core Gleeson Homes operation that really excites us. This focuses on building quality, affordable homes, often in areas undergoing social and economic regeneration, by leveraging established relationships with local authorities.
“This business plays into a number of themes including the government’s levelling up agenda, and actively helping people into home ownership. Some 80 per cent of its homebuyers are former local authority tenants who come from within a mile of the sites on which they buy.
“The long-term demand dynamics are extremely attractive for this type of product. With the average selling price of a Gleeson home only £140,000, its homes are affordable enough to be sold to a couple on the current National Living Wage. Mortgage repayments are almost always less than current council house rent and, with modern build quality, these homes are almost invariably lower-cost to run.
“This focus on the more affordable part of the housing market doesn’t come at the expense of key business fundamentals, with MJ Gleeson’s emphasis on costs and efficiency enabling it to achieve in excess of 15 per cent operating margin on the homes division.
“MJ Gleeson’s management has a stated mid-term objective of building 2,000 homes by fiscal year 2022. However, with the business infrastructure in place and an experienced and ambitious management team, we see the potential for a much larger operation.
“2021 has started well for MJ Gleeson, which recently said that its full-year results to the end of June 2021 will be ahead of previous market expectations. Strong demand for its products has helped propel higher selling prices, which have more than offset recent increases in certain raw material costs.
“We have been steadily adding to our holding in MJ Gleeson and remain excited by the company’s prospects.”
