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Slow progress at Mears

The social housing and care provider is attempting to wind down the working capital absorbed by its housing development activities
August 14, 2019

Although the acquisition of Mitie Property Services (MPS) may have boosted Mears’ (MER) revenue in the first half of 2019, the accompanying margin dilution together with scaled-back development activities served to push adjusted operating profit down by 6 per cent to £19.3m. Some £58m of sales generated by MPS did offset the impact of contract exits in core maintenance services, but with the integration process squeezing the maintenance margin by 0.4 percentage points, operating profit for the division remained largely flat.

IC TIP: Sell at 265p

Seeking to reduce its exposure to the capital-intensive development business, some 36 completed unsold units (up from 25 at the year-end) meant working capital absorbed during the period was higher than planned. Securing the exit from two sites where work was due to commence in late 2019, the group is projecting the final unwinding of self-funded development in the first half of 2021. For now, the division swung to a £0.9m loss during the first half of 2019, and Liberum forecasts this will extend to a £2.5m loss by the year-end and recover to net zero in 2020.

Peel Hunt expects adjusted pre-tax profit of £40.5m and EPS of 29.2p for the full year, rising to £48.3m and 34.6p in 2020.

MEARS (MER)   
ORD PRICE:265pMARKET VALUE:£293m
TOUCH:263-268p12-MONTH HIGH:400pLOW: 220p
DIVIDEND YIELD:4.7%PE RATIO:12
NET ASSET VALUE:185p*NET DEBT:31%
Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201843512.910.53.55
201948112.59.163.65
% change+10-3-13+3
Ex-div:03 Oct   
Payment:24 Oct   
*Includes intangible assets of £226m or 204p a share