MIDAS SHARE TIPS UPDATE: Gleeson shares have rebounded and they should continue to increase
In 1985, James Thomson was a geology scholar at Oxford. Today, he is chief executive of low-cost housebuilder MJ Gleeson. Thomson was appointed after his predecessor Jolyon Harrison resigned in June last year in a row over pay.
Harrison led Gleesons through seven years of growth and the shares fell 11 per cent to £7.90 on news of his departure. But the City has since warmed to Thomson. The shares have rebounded to £9.76 and they should continue to increase.
Midas recommended Gleesons in December 2011, when the stock was £1.09, and looked again at the business three years ago, by which time the shares were £6.13.
The robust performance reflects investors’ confidence in Gleesons’ strategy, track record and prospects.
Solid foundations: Gleeson builds affordable homes in the North of England and the Midlands
Gleeson builds affordable homes in the North of England and the Midlands, generally on brownfield land that is ripe for regeneration.
Last year, the company built just over 1,500 homes. This year, it expects to complete 1,750, rising to 2,000 by 2022.
The homes cost an average of £133,000 each and Gleeson makes much of the fact that, in this price bracket, monthly mortgage payments are cheaper than rent.
The homes are targeted at first-time buyers, often not in highly paid jobs, such as nurses or plumbers, and demand is high.
Last week, Thomson reported that completions rose 17 per cent to 811 homes in the six months to December, with further growth expected between now and the end of Gleesons’ financial year in June.
Thomson has also introduced some changes to the business, strengthening management and tweaking the sales process to achieve slightly higher prices for homes.
Gleeson has another division too, which helps farmers, local authorities and other landowners in the South of England to secure planning permission on sites so they can be sold to housebuilders.
Gleeson then receives a share of the proceeds. The business is normally very profitable but in the first half of this financial year, sales were held up ahead of the General Election and the division made no money at all.
Thomson is confident that this will change in the second half, with several deals already signed and others close to completion.
Brokers expect a 10 per cent increase in turnover to £275million in the year to June 30 with profits up 9 per cent to £44.5million and a dividend of 36p, compared with 34.5p last year.
Further gains are forecast for the years to June 2021 and 2022.
Midas verdict: Jolyon Harrison was a strong force at Gleesons’ helm. Thomson is determined to build and extend that legacy. The shares have made great strides over the past nine years but the price should continue to rise, making this stock a long-term hold.
Traded on: Main market Ticker: GLE Contact: 0114 261 2900 or mjgleesonplc.com