Full-year results that showed a 12pc drop in sales, a 43pc decline in pre-tax profits and a 22pc cut to the total dividend might not sound very encouraging but shares in housebuilder and land development specialist MJ Gleeson are responding favourably (at least thus far).
It is tempting to argue that a lot of bad news is already factored in by the valuation, since MJ Gleeson trades at a discount to book value and comes with net cash on the balance sheet for good measure, so our investment case for the stock set out in May still holds firm.
The Sheffield-headquartered company’s final results for the 12 months to the end of June contained no nasty surprises. Nor is the drop in sales per site per week to 0.43 in the first nine weeks of the new fiscal year to June 2024, from 0.54 in the equivalent period a year ago, much of a shock.
Better still, MJ Gleeson continues to target a market where there is a long-term need and in which it has a strong competitive position, namely affordable housing in the North and Midlands.
The company’s average selling price is £186,200 and its two-bedroom homes start at £106,500.
The Gleeson Land operation provides valuable asset backing and even if site sales fell in the year to June 2023 to three from six there are still 18 sites awaiting planning approval and they are capable of doubling MJ Gleeson’s land bank from the current 17,375 plots.
That underpins both the medium‑term goal of taking annual completions to 3,000 homes, from the last financial year’s 1,723, and the valuation. MJ Gleeson’s £230m market value represents a 19.6pc discount to shareholders’ funds, or net assets, of £286m, and there are no intangible assets included in that figure. Indeed, inventories stand at £344m.
Patience will be required for earnings momentum to turn.
But the mortgage market seems to be showing some signs of stability, especially compared with the chaos of a year ago under Trussonomics, and there is a fair chance that the Bank of England is nearing the peak of its cycle of interest rate rises.
Meanwhile, the well covered forecast dividend equates to a yield of more than 3.5pc so investors are being paid to wait.
MJ Gleeson still looks like an interesting value pick. Keep buying.
Questor says: buy
Share price at close: 394p
After initially buying into Ricardo’s strategy of positioning itself as an engineer and consultancy in a range of technical industries, and not just the manufacturing of cars, the market seems to be having second thoughts, as the shares have fallen by some 15pc from their summer peak.
However, last week’s results for the year to June look perfectly solid, given the leap in order intake, and the balance sheet gives the company room within which to operate.
In addition, the shares look cheap if management achieves its goal of doubling underlying operating margins (into the mid-teens) and underlying operating profits by the year to June 2027, especially as the current market value of £319m is less than historic sales of £445m, even if we must remember a net debt position and lease liabilities.
West Sussex-based Ricardo has been nothing if not busy in the past three years.
A refinancing, the disposal of a software business, an overhaul of the automotive and industrial operations, two acquisitions and the appointment of a new chairman, chief executive and chief financial officer leave a company that generates 70pc of sales from consulting and just 30pc from product manufacturing, with mass transport, aerospace, defence and energy as key client industries, as well as high‑performance carmakers.
Decarbonisation and zero-emission propulsion are key long-term drivers of demand.
Ricardo has customers in America, Europe, the Middle East and Asia, as well as in Britain. That spread helped to boost order intake by more than a fifth and the order book by a sixth in the 2023 fiscal year to provide good visibility for the year to June 2024 and enable management to demonstrate its confidence with a dividend rise.
Ricardo looks ready to perform. Hold.
Questor says: hold
Share price at close: 512p
Russ Mould is investment director at A J Bell, the stockbroker
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