Inland Home plc – Published 18/06/18

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Company Overview:

Inland Home plc.

Inland Homes plc (AIM:INL) develops housing projects in the South and South East of England, specialising in brownfield sites, and regeneration schemes. Its construction arm, Inland Partnerships, is growing fast on the back of strategic partnership deals with housing associations, and others. The company was founded in 2005, and is listed on AIM with a current market capitalisation of £147.5m.

Last trading update

The last trading update covered the six months up to December 31st 2017, and the trading position showed strong growth in revenue but slightly disappointing profit growth. In fact, revenue almost doubled, rising from £32.7m in the previous year, to £61.2m. Pre-tax profit was up from £5m to £5.4m. The company is looking forward to more growth, as its order book showed £38.9m, up from £31.8m for the same period the previous year.

In the six months to December 31st 2017, the company sold 338 sites for building, as opposed to 177 in the comparable period the previous year. Private home sales were up from 87 to 96.

Strong share price and net asset value growth

The share price has risen strongly over the past year. The shares were trading at 51p a year ago, and are currently trading at around the 72p mark. Company directors have been buying over this time. The price/earnings ratio is 7.7 which is very reasonable and dividend cover, at 4.6, is good. (Although the company has in the past often maintained higher dividend cover).

Net assets also showed strong growth – the Net Asset Value (NAV) of the company, was £118.6m in December 2016, compared to £134.7m in December 2017, a 13.6% increase. The EPRA NAV per share takes account of possible share dilutions caused by issues – this rose from 88.16p to 92.78p compared to the previous year.

Not surprisingly, in view of its strong performance, the company felt able to raise the dividend substantially. A 30% rise took the dividend to 0.65p – it was previously 0.5p.

Margins and profits need to rise

In a very good set of results, perhaps the only surprise was that profit hadn’t risen more – pre-tax, it was was up from £5m to £5.4m. However, Chief Executive Stephen Wicks, said that the company aimed to improve its gross margin with respect to new developments. (Last year’s operating margin was 14.77%).

The company has admitted that its housebuilding margins are lower than the average for the sector. They ascribe this to the fact that they previously used main contractors to carry out the construction of new homes. In a change of direction, the company has been making heavy investments in its construction arm, in particular in acquiring professionals to lead construction activities.

The ability to do their own construction should increase margins for the new developments the company is undertaking. It will also enable them to take on construction contracts for a range of strategic partners.

Mr. Wicks believes that the company is hitting the relevant price point for housing and that the overall outlook for the sector will continue to be favourable.

Inland Homes outlook

On the day of the half year trading statement, the company put out a press release saying it had applied for outline planning permission for a site at Cheshunt Lakeside in Broxbourne, Hertfordshire, to build 1,800 homes and provide, retail, commercial, leisure, education and community space over 18,000 sq. metres at the site.

And in June 2018, the company agreed a sale price of £95m for the site of the former Brooklands College in Ashford, Middlesex. The land was sold to A2 Dominion, a large housing association. As part of the deal, Inland Partnerships will provide the construction services for the site development. In May 2018, the company agreed a strategic alliance with KCR Residential REIT plc, which will give them access to developments for the private rented market.

Future opportunities for growth

The company says that government initiatives, such as Help to Buy, are creating a favourable environment for its housebuilding business and partnership ventures. In addition, housing associations and local authorities are increasingly interested in working with partners to deliver housing and developments.

Inland Homes’ regional concentration in the South and South East, ensures that it is operating in areas with very high demand for housing. These areas also have continued population growth, so demographic factors also appear to be favourable. What’s more, Inland Homes appears committed, both to the sustainability agenda, and to thorough-going public consultation, to get community buy-in for new developments. Both of these are “tick in the box” items for government.

Summary

The share price has done very well this year. Further growth in the company’s operations is assured but rises in profits will depend on the success of the strategy to raise margins by taking construction in-house and undertaking construction projects for strategic partners.