7th Jul 2023 11:50
(Alliance News) - MJ Gleeson PLC on Friday said higher interest rates and a downturn in the wider UK economy had a negative impact on the number of sales it made in the financial year ended June 30.
However, despite the drop, analysts at Liberum said MJ Gleeson remains its preferred stock in the sector as the company has the potential to deliver "sector-leading volume growth again" once customers' confidence returns.
MJ Gleeson is a Sheffield-based low-cost housebuilder and land promoter. Shares in the firm were down 1.8% at 378.16 pence on Friday afternoon in London.
Liberum rates MJ Gleeson at 'buy' with a price target of 570.00p. It is a corporate broking client of Liberum.
"MJ Gleeson's shares have underperformed the peer group as Homes' first-time buyer customers have been relatively more perturbed by macro-economic volatility, and as investors have priced in a deteriorating outlook for Land," Liberum analysts Charlie Campbell and Edward Prest said.
"But we continue to see MJ Gleeson as a preferred stock in the sector because it has the potential to deliver sector-leading volume growth again, once customers' confidence returns."
On Friday, MJ Gleeson said it completed the sale of 1,723 homes in the year, down from 2,000 homes the year prior. The firm said the decrease reflected a downturn in the wider economy and the impact of higher interest rates on buyer confidence.
The average selling price of Gleeson homes sold during the year increased 11% to GBP186,000 from GBP167,300 the year prior. The company noted that selling prices were resilient as they were underpinned by a shortage of supply. This helped offset material and labour cost increases during the year.
MJ Gleeson noted that was a "significant" shift in buyer demographics in the second half of the year, with first-time buyers accounting for half of open-market reservations. Last year, first-time buyers accounted for 71% of open-market reservations.
Liberum expects this trend to endure moving forward.
"First time buyers may continue to find market uncertainty an impediment to buying a new home, but the rise in rents has made the alternative far more expensive too," the broker said.
"Gleeson's first-time buyer customers are often thought of as the most economically vulnerable, but it is easy to forget that those on lowest incomes have seen the fastest wage growth. The gap between Gleeson Homes' selling prices and peers is wide, suggesting that there is plenty more scope to attract customers who would previously have bought houses at higher price points."
MJ Gleeson said it has entered the new financial year with a stronger forward order book of 665 plots as at June 30, compared to 618 plots at the same time a year prior.
It starts the new financial year with 82 sites as at June 30, down from 87 sites at the same time a year prior. However, 71 of these sites are actively selling compared to 61 sites at the year prior.
"We are pleased with the year's performance in a challenging economic environment. We have taken advantage of the quieter market to restructure Gleeson Homes, putting the business in great shape to grow as the market recovers. I am hugely impressed with the resilience of our team, who remained focused and committed through that process to deliver these results," said Chief Executive Graham Prothero.
Looking forward, MJ Gleeson said it expects its results for the full year to be in line with market expectations which it did not specify. Its annual results will be published on September 14.
Liberum said that the boost to the 2024 order book from four multi-unit sales gives it the confidence to hold its 2024 estimates despite a challenging macroeconomic backdrop.
"We forecast a 7% increase in Homes completions in 2024 [to 1,850], which at first glance looks ambitious, but is based on sales to individuals falling by around 1%," the broker said.
"Our 2024 estimates of the average selling price is around 5% down from the peak. This should hold even if mortgage rates remain elevated as Gleeson should continue to draw buyers who would historically have bought at higher price points."
By Heather Rydings, Alliance News senior economics reporter
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