Questor share tip: MJ Gleeson doubles profits

Manchester based affordable housebuilder doubles profit and dividends in the first half, says Questor.

MJ Gleeson
442¾p-7
Questor says HOLD

MJ GLEESON is a housebuilder with a difference. Based in the north of the country, it builds affordable homes and yesterday announced that profits and dividends had more than doubled.

“We build low-cost homes for people on low salaries in socially deprived areas that we believe will benefit from regeneration,” said Jolyon Harrison, chief executive. The average selling price of Gleeson’s homes was £120,000 in the six months ended December. By comparison, Barratt, one of the UK’s largest housebuilders, has an average selling price of £220,000.

In practice this means that once schemes such as Help to Buy are included, then Gleeson can afford to sell a new two-bedroom flat to a couple on the minimum wage with a modest mortgage, Mr Harrison added. “We don’t have any real competitors for what we are doing,” he added.

There are bigger firms such as Lovell and Keepmoat that build social housing but these are much larger developments. Nobody is doing the small scale plot development on Gleeson’s model.

The company reported revenue up 32pc to £34.4m and pre-tax profit 108pc higher at £2.7m for the six months ended December. The majority of the performance came from the Gleeson housing division which reported revenue had risen 73pc to £33m and operating profit increasing from £300,000 to £3.5m. This was largely due to an 85pc increase in sales volumes at higher margin sites.

The Gleeson strategic land division that buys greenfield sites in the south of England for development reported a sharp slowdown, with revenue falling to £1.5m and profits of just £100,000, from £7m and £1.7m respectively in the comparable period.

Gleeson suffered in 2008 when its southern-focused housebuilding was hit, sending shares down from about 400p, to 52p. The business has stopped building in the South and refocused on affordable housing and the shares have rocketed by more than 150pc in the past 14 months. Market consensus is for pre-tax profits of £9.2m, giving earnings per share of 17.3p.

Given the lack of affordable housing the shares look good over the long term, but trading on 26 times forecast earnings they are no better than a hold.