MJ Gleeson - GLE

[AsleepInYorkshire]

MJ Gleeson - GLE

Price at close of business 17-06-22 £5.28.

Gleeson's year end is June 2022. Their mid-year interim statement said they were on target to complete 2,000 new homes by year end. There have been no statements since and I expect them to deliver on their target.

Their approximate NAV is £4-£4.40. They have no debt.

In addition to their upcoming year end they are due to announce their medium term strategic targets. I've absolutely no idea what that will be, but I expect them to announce plans to expand the number of units they complete annually to 3,000 by 2027. If I have understood correctly they now have 9 regional offices. I'd expect at some time in the future for each of those offices to be able to deliver 500 homes per annum. However, don't quote me that's a very rough and ready claim.

Whilst Gleeson's are profitable [and have no debt] they are feeling some pressure on their net margin due to skill shortages, inflationary pressures and increases in overheads ahead of an increase in turnover.

I expect them to announce a 12p dividend for the last six months of trading. On a purchase price of £5.50 this is a 3.3% yield, out with dividend cut off dates.

The Gleeson model is reasonably unique. It's nearest competitor is Keepmoat Homes. Gleeson's have improved their build quality in recent years. Graham Prothero, who was Financial Director at Galliford Try Group before filling the outgoing CEO's shoes now heads up Gleeson's.

The Gleeson's business model is to provide cost effective homes in areas of socio-economic deprivation on land that is not suitable for national "post code" developers. Gleeson's will sell to those who live locally and have family and friends nearby.

Subject to the vagaries of covid, Ukraine, inflation, interest rate rises and government support for first time buyers I think the price of this stock is entering value territory. But with a twist ... I think there's room for growth too.

AiY(D)

[AsleepInYorkshire]

Year end announcement. Gleeson achieves 5 year target to complete 2,000 units per annum.

https://marketdata.youinvest.co.uk/1c6q ... 25_4425157

Gleeson will announce further strategic targets in the coming months. I've no idea what that will be but I think they could possibly go for a doubling of numbers in the next 5 years. Previously I felt they would announce taking their volume to 3,000 units over the next five years. But with them reducing the overall dividend I suspect that may suggest they will be using the saving on the dividends to reinvest in growth.

It will be interesting to see what they announce.

AiY(D)

[Johnspenceuk]

Hi
What is size of their land bank?

John

[AsleepInYorkshire]

Hi
What is size of their land bank?

John

https://marketdata.youinvest.co.uk/1c6q ... 03_4267545

AiY(D)

[AsleepInYorkshire]

Trading Update - Year Ending June 2022

Following such a strong performance, the Board expects the results for the financial year to 30 June 2022 to be significantly ahead of market expectations and remains confident in the Group's future prospects.

AiY(D)

[simoan]

Thanks for starting this thread, AiY. It piqued my interest enough that I put MJ Gleeson on my watchlist. I wouldn’t normally be interested In housebuilders but I am currently drawn to the poor relative strength and unique business model of Gleeson. I dipped my toe in this morning following the strong results and outlook.

All the best, Si

[AsleepInYorkshire]

Good Morning TLF

Gleeson year end results look robust

[AsleepInYorkshire]

Thanks for starting this thread, AiY. It piqued my interest enough that I put MJ Gleeson on my watchlist. I wouldn’t normally be interested In housebuilders but I am currently drawn to the poor relative strength and unique business model of Gleeson. I dipped my toe in this morning following the strong results and outlook.

All the best, Si

I've added a little a couple of day ago.

The underlying EPS looks good. I will respond a little later with some other thoughts.

Thank you for your post.

Best

AiY(D)

[Dod101]

Thanks AiY. I like Gleeson and have held them for some time but am of course well under water. They have perked up quite a bit over the last day or two so I am hoping with their good results and outlook that we will see some growth notwithstanding the general economic climate. I do not know why they fell so much. I cannot though see anyone making a killing from them, but I like the conservative Balance Sheet, the good dividend and the relatively straightforward business model, coupled with with a good ROCE.

Dod

[AsleepInYorkshire]

RNS Trading Update 18-11-22.
Having reviewed a number of scenarios, the Board believes that Gleeson Homes could deliver volumes anywhere in the range between 1600 and 2000 units.

With eternal thanks to Liz Truss & Kwasi Kwarteng. What a pair of clowns.

Summary of RNS

1. Mini budget caused shock to mortgage market
2. Cancelations normally at 20% rose to 41% over six weeks
3. Net reservation rates reduced from 0.42 to 0.26 per site per week, compared to same period last year
4. Average selling price up 9% to £186,500 from start of financial year ending 2023
5. Board encouraged by Government Autumn Statement of 17-11-22
6. Couple on National Living Wage can still afford to purchase a Gleeson Home on all Gleeson sites
7. Some evidence of customers who would normally go to a more expensive builder being attracted by Gleeson price points
8. Land prices remain sensible. Land bank robust. 8,607 owned plots. 7,877 conditionally purchased plots.
9. 88 active build sites, up 6 on previous year. Actively selling on 68 sites, up 8 on last year
10. Land Division reports some house builders freezing land purchases
11. One site sold this year, with four more being "actively" progressed to sale
12. Pipeline consists of 71 sites amounting to 18,755 plots.
13. Planning delays hampering progress. However, second half of year holds some promise of further sales

Information Review

1. No debt
2. Loan facilities of (iirc) £105m
3. Land division does not buy land speculatively to sell - it works in partnership with land owners at no risk
4. Homes division well placed for expansion with 9 offices open
5. Sold 2,000 units last year
6. Turnover last year £373.7M
7. Operating profit last year before exceptional item £56.8m
8. Exceptional item £12.9m
9. Net profit £35m

The Business Model

1. Sell low cost new homes to private buyers
2. Do not sell to landlords. New homes cannot be rented out.
3. Significant brown field redevelopment
4. Are not postcode sensitive, focusing on land other developers, including nationals will not consider
5. Sell to those who live locally and want to remain close to friends, family & work
6. Main selling point is their new homes cost less to buy than paying rent
7. Homes are considered to be affordable for those on national living wage
8. Homes are on average 59% cheaper than other new build in the area equating to £98.7K on the average selling price
9. Over 80% of sales to first time buyers

Headwinds

1. Corporate gains tax increases to 25% from 19% effective from April 2023
2. RPDT (Residential Property Development Tax) at 4% due from April 2022. I believe there is an allowance of £25m on profits before this tax is applied.
3. Removal of Help to Buy government scheme
4. Unemployment is predicted to rise by 600,000 as UK enters recession
5. Uncertainty regarding inflation, in particular energy and fuel price increases due to Russia's invasion of Ukraine

Tailwinds

1. Aspirational preferences of buyers to own a new home at a price they can afford
2. Minimal competition. Nearest competitor Keepmoat.
3. No debt
4. Cheap land. Land bank doesn't expose business to great risk of negative revaluation. Homes division.
5. Land division is not exposed to risk of owning land. It is a fee based business model
6. Impact of Help to Buy withdrawal unlikely to slow sales. Evidence based survey by Gleeson

Some Maths

1. Assuming a blended gross profit of 30%
2. Assuming administrative expenses remain at £54m
3. Factoring in 4% RPDT with £25m allowance
4. Assuming land division turnover at £30m
5. Assuming two average selling prices, 165K & £186K

Then [if my maths is good enough] EPS will be around these sort of areas ;

Comp	165K	186K
1600	0.47	0.60
1700	0.53	0.68
1800	0.60	0.75
1900	0.66	0.82
2000	0.73	0.90

EPS for year ending 2022 was 78p

Just after Truss and Kwarteng's mini budget I did a quick review of the affordability of Gleeson Homes. I analysed a 2 bedroom semi-detached home on the market in Hull about 8 miles from where I live. I know that area of Hull very well and it can be considered typical of the areas that Gleeson will develop in. The selling price of the home was just below £210/FT2. The home is about 5-10% larger than other modern 2 bedroom homes at 640FT2. There are several semi-detached homes on my street. They are 760FT2 and their selling price is about £350/FT2. A mortgage of 6% on the Gleeson home I analysed would cost £636/month, assuming a 5% deposit is paid. Most two bedroomed homes in Hull of a similar standard cost over £650/month in rent.

AiY(D)

[Dod101]

Thanks again AiY. The cancellation rate is pretty staggering but hopefully things will settle down again although of course the inflation rate will not be helping. The business model still looks perfectly workable.

Dod

[AsleepInYorkshire]

MJ Gleeson Trading Update

Previous Trading Update 18-11-12

Previous guidance on Gleeson Homes year end completions ranged between 1,600 - 2,000 units.

Todays RNS

Homes

• Half Year (31-12-22) 894 completions. 4.1% lower than 2021 half year
• Selling prices remain stable - i.e. avergae £186.5K/home
• Cancellations reduced to 6.5 plots per week. Was 11.5 plots per week in the previous six weeks (subsequent to "Mini Budget, Truss/Kwarteng)
• Gross reservations leading up to Christmas (quiet time of year) 22.5 per week. Was 29.5 per week in same period HY 2022
• Forward order 391 plots. Previous year 616
• Net cash balance £13.5m
• Board cautiously optimisitc
• Mortgage rates fallen from peak of Oct' 22
• Demand remains robust as need for low cost housing is "acute"

Land

• 1 site sold
• 3 sites with full planning approval progressing to sale

Next Update with interim results 16-02-23

Copy of Previous table predicting EPS outcomes

1. Assuming a blended gross profit of 30%
2. Assuming administrative expenses remain at £54m
3. Factoring in 4% RPDT with £25m allowance
4. Assuming land division turnover at £30m
5. Assuming two average selling prices, 165K & £186K

Comp	165K	186K
1600	0.47	0.60
1700	0.53	0.68
1800	0.60	0.75
1900	0.66	0.82
2000	0.73	0.90

EPS for year ending 2022 was 78p

Given house sale prices remain stable and anticipating all 3 land sales complete for year end then column 2 is the column to watch. With some decent tail winds Gleeson could complete on 1,835 units by year end. Setting their EPS at just over 75p.

AiY(D)

[AsleepInYorkshire]

Trading Update - Half Year - Ending 2023

Summary

• Anticipated completions between 1,650 & 1,850
• Organisational restructuring underway - Graham Prothero new CEO looking for £4m in savings
  
  Homes
  
  1. Completions 894 - (H1 2022 - 932)
  2. Selling price up 15.6% to £186,400 (H1 2022 - £161,200). Underlying selling prices up by 11.2%
  3. Operating profit down 19.1% to £18.2m (H1 2022 - £22.5m)
  4. 3 new sites opened (H1 2022 - 8 sites)
  5. Land 16,561 plots (June 22 - 16,814)
  
  Land
  
  1. 1 land sale (H1 2022 - 3)
  2. 3 sites in active sale process (H1 2022 - 0)
  3. 2 sites being marketed (H1 2022 - 3)
  4. 4 sites secured planning (H1 2022 - 0)
  5. 1 site added to portfolio (H1 2022 - 3)
  6. Portfolio 71 sites (H1 2022 - 71)

In a previous post I predicted 1,835 completions at year ending 2023. That still remains achievable but is at the high end of anticipated results. With operating profit reduced on an increased selling price there's a clear reason that Prothero is looking for £4m in savings through reorganisation. I think this is a big ask and am not convinced delivering such a large saving is in the best interests of the company as it seeks growth. It "feels" short like short termism. Gleeson has been driving growth organically. It has opened small regional offices with local teams who report upstream to Group. Group also provide central services. Prothero has not detailed how he proposes to make £4m of savings without threatening the underlying future potential growth of the housing business.

I am not one of Prothero's biggest fans. With a clean sheet to work with now he has left the farce that was Galliford Try I can only hope he reports more transparently.

Added to holding with aggregate buy in of £4.88

Recent trading at £4.50

Dividend for H1 5p

AiY(D)

[Dod101]

Thanks AiY. As I have commented on the thread I started on 3 January my double or quits strategy on 3 January appears to have been a good one. I added to my holding on that day at £3.478. Today the price is around £4.57 the last time I looked. These results are pretty much as I would have expected from this well run house builder. No surprises.

I know nothing of the new CEO.

Dod

[AsleepInYorkshire]

Deposit-free mortgage aimed at renters launched

Skipton Building Society says while its deal requires 12 months of on-time rental payments and a good credit history, it does not need a guarantor.

Could be the start of a trend towards mortgage providers accepting that someone who has consistenly paid rent has created a good credit history and can pay a mortgage. There's another intersting point in the article which suggests government is reviewing possible support for first time buyers as the Help to But Scheme was withdrawn in October 2022.

AiY(D)

[servodude]

here's another intersting point in the article which suggests government is reviewing possible support for first time buyers as the Help to But Scheme was withdrawn in October 2022.

I appreciate it's a typo but I was amused by the idea of a "we'd like to help but" scheme

[AsleepInYorkshire]

here's another intersting point in the article which suggests government is reviewing possible support for first time buyers as the Help to But Scheme was withdrawn in October 2022.

AiY(D)