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MJ Gleeson remains ahead of the cost curve

The affordable homes specialist has delivered across the board
MJ Gleeson remains ahead of the cost curve

 

  • Supply chain pressures and planning delays
  • 17 more sites expected over second half

In an understocked housing market, MJ Gleeson (GLE) sold 932 homes at its half-year mark, a 14.9 per cent increase on the pre-pandemic comparator, but down 2 per cent year-on-year. In mitigation, the 2021 sales figure was artificially boosted by completions carried over from the first lockdown.

Nevertheless, the Gleeson Homes arm saw a 9.8 per cent increase in operating profit to £22.5m, aided by the opening of eight new sites, with 17 more expected over the second half. The government’s Help to Buy scheme was employed in 55 per cent of sales, down from 69 per cent last year, as the scheme now favours first-time buyers.

Affordability is a key consideration for Gleeson’s buyers, so the company has benefited from an increase in high loan-to-value products offered by lenders in the housing market. Management notes that the cost of “owning a Gleeson home is significantly lower than the cost of renting and will remain so even with modest interest rate rises”.

The spectre of rate rises aside, the company, in common with industry peers, has had to contend with supply chain pressures and skilled labour shortages which have made securing the services of sub-contractors more difficult – and expensive. Obtaining planning permission for new sites has also become a more arduous process due to resourcing issues among local authorities.

Management now expects to deliver 2,000 homes this financial year and the board is confident that results will be ahead of market expectations, assuming the pandemic continues to abate. Longer-term, the group’s business model is supported by entrenched demographic factors, and while a forward rating of 11 times consensus earnings isn’t overly demanding, we would like to see more evidence of easing cost pressures, even though the increase in its average property sale price is still outstripping inflation. Hold.

Last IC view: Hold, 840p, 14 Sep 2021

MJ GLEESON (GLE)   
ORD PRICE:735pMARKET VALUE:£429mn
TOUCH:722-738p12-MONTH HIGH:910pLOW: 684p
DIVIDEND YIELD:2.2%PE RATIO:11
NET ASSET VALUE:446pNET CASH:£38mn
Half-year to 31 DecTurnover (£mn)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
202014320.328.55.00
202117424.734.46.00
% change+22+22+21+20
Ex-div:03 Mar   
Payment:04 Apr