Rather than all the hassle and risk of buying to let my own property, I’d prefer to invest in shares with businesses in the wider property market such as low-cost house-builder and strategic land specialist MJ Gleeson (LSE: GLE).
I last wrote about Gleeson in a positive article in September 2018. Back then, the share price stood at 718p and the forward-looking dividend yield was just over 4%. I thought the share was “attractive.”
Today, the share price is at 822p, but after initially rising, it dipped below 700p in June along the way. Such volatility is rife right now among traditionally cyclical stocks such as this one. Indeed, the political and macroeconomic scene makes the immediate outlook seem unclear for many firms.
But Gleeson delivered another set of impressive full-year results this morning, so maybe we shouldn’t worry too much. Revenue rose 27% compared to the prior year and earnings per share rose 10%. The directors signalled their satisfaction and optimism about the outlook by pushing up the total dividend for the year by 8%.
The report reveals to us that around 70% of profits in the year came from the Homes division and 30% from Strategic Land, making the firm’s low-cost home-building activities in the North of England very important to the firm. Volumes were up 25% in the year with the company selling 1,529 units.
And in more evidence that property prices have continued to rise, the average selling price was up almost 3% over last year, at £128,900. That strikes me as a high bar to jump over for new entrants to the property market but schemes such as the government’s Buy to Let are helping to keep things moving.
Indeed, the homes have been selling, and Gleeson increased its land pipeline by nearly 6% during the year to 13,575 plots. The firm’s goal is to sell 2,000 completed units a year by 2022 and it is “well on track” to achieve that, according to the directors.
No problems from Brexit
Meanwhile, the Strategic Land division, which operates in the South of England, saw an increase of just over 3% in operating profit and sold nine parcels of land in the period. There are 60 sites in the portfolio and the directors said in the report that they made the decision not to sell the Strategic Land division because keeping it offers “significantly greater long-term value to the Group than selling the business.”
Trading has been robust and profitable, it seems. But I must own up to being a little nervous about the immediate prospects for all property companies and house-builders at the moment. However, the chair, Dermot Gleeson, said in the report that demand is “extremely strong” despite the uncertainties hanging over us all because of the Brexit process.
The outlook is positive and the directors come across as bullish to me. Meanwhile, with the share price close to 822p, the forward-looking earnings multiple runs just above 12 for the current trading year to June 2020 and the anticipated dividend yield is a little below 4.4%. That valuation seems undemanding to me.
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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.