M J Gleeson (GLE)

[Dod101]

I have held this company for some time. It was one of my two dividends suspended at its final dividend for the year to 30 June 2020 and I am delighted to see that with its Interims to 31 December it has reinstated its dividend. Furthermore they say that the full year results are likely to be significantly ahead of the market consensus, This is a small conservative company and this is therefore excellent news.

Makes a change from the (un) progressive dividends from the likes of the two big pharmas.

Dod

[dealtn]

Half Year Report

https://www.investegate.co.uk/mj-gleeso ... 00036945O/

[AsleepInYorkshire]

I have held this company for some time. It was one of my two dividends suspended at its final dividend for the year to 30 June 2020 and I am delighted to see that with its Interims to 31 December it has reinstated its dividend. Furthermore they say that the full year results are likely to be significantly ahead of the market consensus, This is a small conservative company and this is therefore excellent news.

Makes a change from the (un) progressive dividends from the likes of the two big pharmas.

Dod

You'll be aware that Gleeson's founding CEO Jolyon Harrison left the business in June 2019 when they refused to accept his increased pay demands. He was replaced by James Thompson. James previously headed up Keepmoat Homes who are considered to be Gleeson's closest competitor. I should note that I have heard this comment direct from senior board members within Gleeson's, past and present. Gleeson's business model is robust. However, I am not convinced that it's margins will remain as strong moving forward. Of course I would be more than happy to be proven wrong. HS2 has already started to create demand for construction skills in and around the midlands and that is creeping towards Sheffield.

The original Gleeson business model was based around the tagline "Why rent when buying is cheaper". And they backed that up with figures proving that renting a home for (say) £500 was more expensive than a purchase costing (say) £475 month. 80% of Gleeson's customers are first time buyers. Information from within Gleeson's suggest that withdrawal of the Help to Buy government scheme would not impact sales figures.

So the dichotomy for Gleeson's is that as the demand in the skills market increases they will face increased costs which they will struggle to pass onto their customers without materially affecting their original business model which was to sell cheaper than renting.

My best guess would be that Gleeson's will have to, at some point, accept margin reduction, which will mean they have to build more units to obtain the same bottom line.

Last year Boris Johnson announced that £5Bn of funds allocated for Affordable Housing was to be brought forward immediately. There is, therefore, an increased demand on both land and skills that Gleeson's already rely on.

Gleeson's growth has been phenomenal. However, I think the potential headwinds of increased costs and the entry of Affordable Housing demands will present a significant challenge to the Gleeson business model.

AiY

[Dod101]

Thanks AiY. I have just read much of what you say in the Interim Report but I did not know about the effect HS2 may have on their labour market. Anyway right now they have given us a very positive commentary, with increased margins, an optimistic view of the trading to 30 June and a repayment of their furlough monies received.The reinstated dividend is well below where it was but at least there is now a dividend again.

The fallout with the CEO was some time ago now and I thought it was good that the management stood firm. Jolyon seemed to have rather overplayed his hand, and at his age that was surely a bit silly.

Dod

[AsleepInYorkshire]

Thanks AiY. I have just read much of what you say in the Interim Report but I did not know about the effect HS2 may have on their labour market. Anyway right now they have given us a very positive commentary, with increased margins, an optimistic view of the trading to 30 June and a repayment of their furlough monies received. The reinstated dividend is well below where it was but at least there is now a dividend again.

The fallout with the CEO was some time ago now and I thought it was good that the management stood firm. Jolyon seemed to have rather overplayed his hand, and at his age that was surely a bit silly.

Dod

Hi Dod,

You're more than welcome. I don't want to sound like a pessimist or a nay-sayer as I admire the Gleeson business model and the progress they have made to date.

The increase in work around the midlands area is crazy. Gleeson's have a presence in and around Nottingham.

Jolyon brought the business model to Gleeson's. Gleeson's had been a building contractor for many years but sold out to cash as it was struggling to survive. I believe they had about £20M cash. But don't quote me please

In my opinion both HS2 and the immediate increase on affordable housing spend will create some underlying cost pressure implications for Gleeson's. I'd prefer not to think that, as I'm aware that Gleeson's shareholders enjoy the dividend. Additionally there may well be an increase in land costs with an improved demand from registered affordable housing providers looking to secure numbers.

Many Local Authorities now require significant numbers of affordable homes to be included in new homes planning applications. It's not black and white as with all things planning but in East Yorkshire the general guideline for affordable housing is (iirc) 50%. Gleeson's model allows them to build without breaching this as their prices are considered "affordable".

I wouldn't be surprised if Gleeson's became a target for acquisition from a national looking to complement it's planning applications with affordable new homes. Most nationals are now sat on considerable amounts of cash and would be (again in my opinion) able to purchase Gleeson's for cash. I note I could be talking out of my rear

Of course I wish you and all Gleeson's shareholder's good fortune in the future.

AiY