Speak to most leading housebuilders and they’ll say that they can afford to be selective when buying land, purchasing only the most profitable plots. MJ Gleeson does the opposite.
The 112-year-old Sheffield-based developer buys land that local authorities struggle to sell in socially deprived areas and turns them into affordable homes for people on low incomes. The average selling price is £125,700. By way of contrast, Barratt, Britain’s biggest housebuilder, has an average selling price of £289,800.
Once the government’s Help to Buy scheme is factored in, MJ Gleeson can sell a two-bed semi-detached with garden and drive to a couple with a combined salary of £32,000. That’s £67 a week with the right mortgage, compared with £74 per week for a typical council house rent.
MJ Gleeson does not sell to investors and insists on using workers recruited within a two-mile radius of the site. The company said that it had seen no impact from the Brexit vote, estimating that about 70 per cent of its customers voted Leave. Crucially, it has no real competition for the land it builds on.
MJ Gleeson reported revenue up 20.8 per cent to £142.1 million in the year to the end of June, while pre-tax profit rose by 21 per cent to £28.2 million, beating analysts’ expectations. Most of the group’s performance comes from its housebuilding division, where revenue rose 18.2 per cent to £113.6 million. It sold 904 homes during the year, so is well on its way to reaching its target of building 1,000 homes a year, with potential for 3,000. The margins on homes sold rose to 31.1 per cent, up from 29.6 per cent the year before because of lower land costs and firm cost control.
The other side of MJ Gleeson’s business is focused in the south of England. It buys highly desired land, secures planning permission and sells it to other housebuilders. Revenue from its strategic land division rose 32.1 per cent to £28.4 million. Operating profit rose 25.9 per cent to £10.2 million.
Having turned itself around from 2008 when its southern-focused housebuilding was affected, the company has no debt and operating cash of £13.9 million. A sign of the board’s confidence is in the total dividend, up 45 per cent to 14½p.
My advice Buy
Why The focus on low-cost housing, combinded with strong margins and promising growth, makes this a compelling investment
Gemfields
Diamonds may be a girl’s best friend, but it is coloured gemstones that are becoming the must-have jewellery item and Gemfields is well positioned to capitalise on that growth in demand.
The African-focused supplier of emeralds and rubies has spent recent years building up demand for coloured gems, which has long sat in the shadow of a diamond market that is about ten times as big. It has worked, too: the AIM-listed company has gone from a share price of little more than 3½p in 2010 to one of 45¼p, with operations spanning Zambia, Mozambique, Colombia and Sri Lanka.
Gemfields has replicated the strategy of De Beers by auctioning directly to buyers, deciding who is invited, where the auction is held and which batch of stones goes on sale. It also has tripled production at its Kagem emerald mine in Zambia, the world’s largest, since buying 75 per cent of the mine in 2008. Output remained steady at 30 million carats, with an estimated 1.8 billion carats of emerald and other varieties of beryl in the mine worth $520 million. In Montepuez, Mozambique, 10.3 million carats of ruby gemstones were unearthed, four years after the company bought 75 per cent of the mine for $2.5 million in 2011.
Revenue rose 13 per cent to $193.1 million for the year to the end of June, with underlying earnings of $69.4 million, up $5 million from a year earlier. Profit after tax nearly doubled to $23.5 million, while the group has $41.5 million in cash, up from $28 million a year earlier. A sparkling set of figures.
My advice Buy
Why Growing demand for gems and lack of rivals
Capital & Counties
Covent Garden has long been the jewel in Capital & Counties’ crown and the company has raised £175 million of debt from five American investors to help to fund its redevelopment of the area.
Capco is one of the largest developers in London and owns £2 billion of what is mostly retail space in the Covent Garden area after buying it in 2006, pouring in millions of pounds worth of investment and attacting big brands to the area such as Apple and Mulberry. The company is developing an 83-bed luxury hotel in Covent Garden with Robert De Niro, the actor, and BD Hotels.
Capco reported in July that the value of its Covent Garden property had increased by 3 per cent to £2.1 billion in the first half of the year. This would make Capco a promising investment case , were it not for its 7,500-home Earl’s Court development. It wrote down the valuation of its 77-acre project in west London by 14 per cent to £1.2 billion.
Its shares have been struggling since the European referendum result, falling from 362½p on June 23 to 285p yesterday.
My advice Avoid
Why The Earl’s Court project faces a risk of a drop in prices
And finally...
The battle to cut out the middle man continues. Zoopla, the second biggest property portal in the UK, is moving into property investment by allowing customers to invest as little as £100 in the buy-to-let market. The website has teamed up with the leading property peer-to-peer lending platform Landbay to allow its customers to invest in buy-to-let mortgages applied for by landlords, earning interest on the contributions. The new channel for Zoopla has been given the, rather unorginal, name of Invest.
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