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Mears cuts forecasts on Grenfell impact

Increased safety checks following the tragedy have delayed workloads for the group
August 15, 2017

The tragedy at Grenfell Tower has rightly prompted property owners to scrutinise the safety and regulatory compliance of their housing. This has meant delays for maintenance and upgrade provider Mears’ (MER) planned workloads, leading it to cut its full-year revenue forecast for the housing division by £30m to £800m. Margins are also expected to be squeezed to a range of 5.3-5.5 per cent, compared with the 5.6-5.8 per cent previously expected. Chief executive David Miles said no work had been lost, just delayed, but nevertheless the shares were down more than 8 per cent on the news. Medium-term expectations are unchanged, but analysts have trimmed their full-year forecasts.

IC TIP: Buy at 445p

There was also good news in housing, however. The company has been approached by an unnamed property investor to discuss a partnership, whereby Mears would provide management and maintenance services. The outsourcer currently plays landlord to around 10,000 properties, and Mr Miles said this could increase rapidly.

Conditions remained difficult in the care division, with revenue falling 10 per cent in the period. However, this is better than expected given the group had closed branches and passed up contracts equivalent to 30 per cent of historic revenue, as part of its push to improve margins. It also successfully introduced price increases to offset rising costs from the new national living wage and apprenticeship levy.

Analysts at Peel Hunt are forecasting adjusted pre tax profit of £40m for the year to December 2017, giving EPS of 30.3p (from £40.1m and 30.4p in 2016).

MEARS (MER)   
ORD PRICE:445pMARKET VALUE:£460m
TOUCH:440.8-447p12-MONTH HIGH:540pLOW: 407p
DIVIDEND YIELD:2.7%PE RATIO:21
NET ASSET VALUE:195p*NET DEBT:10%
Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201646612.710.13.30
201747112.79.93.45
% change+1-0-2+5
Ex-div:19 Oct   
Payment:7 Nov   
*Includes intangible assets of £194m, or 188p a share