Gleeson has issued an encouraging update on its recent site re-openings, construction activity and customer engagement. Sites are reopening as planned (62 out of 67 reopened) and customer demand is recovering well. Reservation levels are now at 70% of pre-COVID levels, up from 25% in recent months. The forward order book for sales in the next financial year stands at a very strong £135.2m on 940 plots (30th June 2019: £87.6m on 677 plots) and Gleeson is working to improve build rates within COVID-19 Secure protocols. The Group is in good financial shape after the recent placing and strategic growth plans are very much intact.
Companies: MJ Gleeson
Following this week’s updated guidance from the Government, Gleeson Homes will now implement its plan to restart build and sales activity across its 67 sites. This will be carefully managed with the emphasis on the safety of staff, subcontractors and customers. Gleeson has also launched its Key Worker Priority Programme to prioritise sales to key workers, who already represent 2/3 of customers. It is too early for the company to provide forward guidance but we remain of the view that Gleeson will emerge strongly, given the strength of its proposition with a focus on highly affordable good quality homes across the Midlands and North of England.
Gleeson has announced a proposed placing of up to 2,730,100 new ordinary shares (c.4.9% of ISC) at a price of 600p. The placing is expected to raise gross proceeds of c.£16.4m. The net proceeds of the fund raise will ensure the Company is well placed to rapidly meet pent-up demand from first time buyers as and when COVID-19 restrictions are lifted. Funds will be used to accelerate the resumption of building on existing sites, accelerate the opening of sites already owned or contracted (c.£10m), facilitate the return of sub-contractors and key trade to the Company’s sites (c.£4m), and secure sufficient building materials (c.£2m). Post the Placing, the Company will have cash on hand of c.£82.9m, with a monthly cash burn of £3.1m, down from £4.9m pre the COVID-19 restrictions, and an expected upcoming unwind of balance sheet payables over the next 6 months of £22.9m.
Red Dwarf, the very British sci-fi comedy franchise, ran for 11 seasons – most recently in 2017; and The Promised Land is a feature-length TV movie – out this year. Yes, the programme is an acquired taste. Strangely, too, many episodes are impacted by a virus or three (physiological, not main-frame).
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Gleeson’s announcement this morning details a number of steps management has taken to mitigate the impact of the COVID-19 pandemic on the business. These steps include extensive furloughing of staff and salary reductions (detailed below), which will substantially reduce monthly operating costs at a time of significant uncertainty. This follows the earlier announcement of 25th March, which confirmed the pausing of all build activity and the cancellation of the interim dividend amongst other cash conservation measures. Management’s focus now turns to preparations for an efficient resumption of activities when permitted.
In line with many other listed housebuilders, Gleeson released a COVID-19 update yesterday afternoon. Following recent guidance from the Government, a controlled wind down and temporary closure of site activity will take place. On site sales offices had already been closed to enforce social distancing. Sites and sales offices will be reopened at the appropriate time. The company is unable to provide financial guidance at this stage and we withdraw our forecasts, as we have for numerous other companies in recent days. The company has a strong balance sheet with cash balances of £67m currently, including £60m drawn down from the Company’s committed bank facility, in addition to a £10m committed overdraft facility. The interim dividend (12.0p/£6.6m in cash) has been cancelled in order to preserve cash in light of current uncertainties. Despite current uncertainties, we believe Gleeson has a resilient model and a compelling proposition that should ensure the Group prospers over the medium term.
Gleeson’s interims are in line with our expectations, comprising another period of strong progress within Gleeson Homes set against a temporary hiatus within Gleeson Strategic Land, partly impacted by the timing of the General Election. This was well flagged in January’s pre close and FY expectations are unchanged. In H2, we look forward to more of the same from Gleeson Homes and a pick-up in activity in Strategic Land (three sites now sold and four being progressed for sale). In our view, Gleeson is a high quality business with a first rate management team and exciting medium term growth prospects. It is one of our Best Ideas for 2020.
For fighter pilots, it is a minimum requirement. But having 20/20 ‘visual acuity’ (correct term) does not necessarily mean you have perfect vision (as convention assumes); instead, it indicates sharpness and clarity of vision at a distance. It is measured by a Snellen Chart, which displays letters of progressively smaller size and whereby 20/20 means that the test subject sees the same line of letters at 20 feet that a person with normal vision sees at 20 feet (or 6 metres; but 6/6 simply didn’t catch on).
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Gleeson’s AGM statement confirms a continuation of recent positive trends, with both divisions experiencing strong demand. Full year expectations are reiterated and Gleeson remains well positioned to deliver sustained double digit volume growth as it moves towards its 2,000 home target. Earlier this week James Thomson was confirmed as Gleeson’s new permanent CEO, having stepped in as interim CEO in June. We consider this a strong appointment, in particular given James’ management of a period of substantial growth at Keepmoat Homes between 2012 and 2019.
Dame Agatha Christie (née Miller) published more than 80 books and plays; and the Guinness Book of World Records lists her as the best-selling novelist of all time with roughly two billion copies sold. ‘And then there were none’ was originally published in 1939, with an un-politically correct title; and it is still the world’s best-selling mystery (with more than 100 million sold). It is also number six on the list of best-selling books of all-time.
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Gleeson’s prelims confirm a strong conclusion to FY19 with PBT and EPS coming in 2% ahead of our expectations. Market fundamentals remain highly supportive of the Gleeson model and it is reassuring to see that the business has not missed a beat since the high profile leadership change in June. Gleeson Homes remains well on track for the current year and for the 2022 target for 2,000+ homes (vs. 1,529 completions in FY19). Gleeson Strategic Land is well positioned to continue to deliver consistent profits and cashflows and the decision has been taken to retain the business within the Group. We are long term supporters of the Gleeson model, which in our view remains compelling in the current environment.
Due to a change in Analyst role, Cenkos Securities plc has suspended coverage of the following stocks (see table 1). Our previous recommendation and forecasts can no longer be relied upon.
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Dwight Barkley PhD is a Professor of Mathematics at the University of Warwick. He studies waves in excitable media such as the Belousov-Zhabotinsky reaction, heart tissue and neurons. In 1997, Dr Barkley and Dr Laurette Tuckerman, a Paris-based mathematical physicist, developed ‘bifurcation analysis for time steppers’, which is a technique for modifying computer codes to perform bifurcation analysis. More lyrical, perhaps, Dwight is also known for formulating an equation to estimate how long it will be until a child in a car asks the question “are we there yet?” And, it is shown on the image on page 3 of this report. Herein, there are three factors which decide the timing of this wearisome question i.e. one plus the number of activities, divided by the number of children in the car squared. That figure is then added to the time it took the family to get into the car and set off on its journey. Crucial in putting off the first query as to the proximity of the destination are onboard activities for children i.e. no activities equals a question before leaving the driveway. Dr Barkley says: “Mathematics can help answer many of life’s questions”. If only the Brexit journey were that simple. It is not. We are all children now stuck in the back seat; and, maybe, we are still on the driveway with a dearth of on-board activities. Yes, three years on Brexit-resolution-fatigue is making itself felt across the board, including the UK Housebuilding Sector, where the fall in value in 2Q’19 was 7%. Berkeley said something similarin its final results, on 20 June, when it lamented an uncertain operating environment and “a lack of visibility in the political outlook”; and its PBT is expected to fall by a further third this fiscal year. The daily Sector value chart is also lurching from top-left to bottom-right (as is the British Pound versus the Euro). Yes, there were two palpable positives in 2Q from the NHBC and UK Finance about building activity and mortgages; plus, on the third day of 3Q, CBRE’s bid for Telford Homes. Nonetheless, prospective earnings growth for the Sector is now flat in both 2019 and 2020. This is about the journey.
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MJ Gleeson has concluded FY19 strongly, with continuing momentum and comfortably in line with expectations. This is the type of statement we have become accustomed to over recent years, suggesting it is business as usual after the recent change of CEO. Gleeson Homes remains well on track to achieve its stated target of doubling volumes to 2,000 new homes by 2022. The division anticipates an acceleration in new site openings in the current year to 80+ from 69 currently. Gleeson Strategic Land has commenced the current year in a strong position, and there is as yet no further news on the strategic review of this business. The Group is in excellent shape with a strong balance sheet, ambitious growth plans and a positive demand environment. We remain firm supporters of the Gleeson model and expect the shares to recover lost ground ahead of the results (16th September).
Jolyon Harrison, CEO of MJ Gleeson since 1st July 2012, has stepped down from the Board and left the Company with immediate effect. Following extensive discussions regarding his remuneration and succession planning, the Board concluded that it was not possible to find a mutually acceptable basis for Mr Harrison to continue as CEO. Jolyon oversaw a period of significant growth for the Group, and particularly Gleeson Homes. James Thomson will join the Board as interim CEO with immediate effect. James was formerly Chief Executive of Keepmoat Homes Ltd where he remains a non-executive director and shareholder. We consider this a strong appointment. The Board is initiating a search process, which will include both internal and external candidates, to identify a long term CEO appointment. Guidance for the current year to 30th June is reiterated and a year end trading update is scheduled for early July.
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A number of REITs have the ability to thrive in current market conditions and thereafter. Not only do they hold assets that will remain in strong demand, but they have focus and transparency. The leases and underlying rents are structured in a manner to provide long visibility, growth and security. Hardman & Co defined an investment universe of REITs that we considered provided security and “safer harbours”. We introduced this universe with our report published in March 2019: “Secure income” REITs – Safe Harbour Available. Here, we take forward the investment case and story. We point to six REITs, in particular, where we believe the risk/reward is the most attractive.
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Full year results slightly ahead; improving trend in trading since April
Walker Greenbank is a higher end interior furnishings business with well-established global brand names and manufacturing facilities in the UK. The Group has this morning released full year results to 31 January 2020, slightly ahead of our forecasts at the PBT and EPS levels. During the year, and against what was already a challenging wider market backdrop, brands such as Morris & Co as well as the group's core licensing revenue stream largely offset wider weakness in the UK and US markets. As would be expected, trading since year-end has been extremely difficult, with product sales c.35% down in the first five months of the current financial year. Encouragingly, product sales in the last four weeks are reported to have been 31% below the comparative period, reflecting a steadily improving trend since the beginning of April. At this stage we leave our forecasts under review but it is encouraging to see the more recent improvement in trading patterns, whilst internal actions and the refocused strategy continue to improve the outlook for the group.
Companies: Walker Greenbank
UPGS released an unscheduled trading statement this morning which confirms better than expected numbers for FY2020 sales revenue, profitability, and net debt. A more encouraging outcome than previously envisaged when the company reported its interim results on 30th April.
Companies: Up Global Sourcing
The ongoing pandemic only serves to underline business models that are robust, and those that aren’t. This morning’s trading update from UPGS puts them firmly in the winners’ category. As the company approaches the final weeks of FY2020, it not only reports “better than expected progress” against an uncertain business backdrop, but also that revenue and key profit measures for the year should be ahead of current market expectations. Furthermore, online as a portion of total business should record a fourth consecutive increase, providing additional flexibility and strength in the case of a second wave.
Two of the pivotal issues flagged in recent research have now been firmly addressed. Gross margin gains & cost efficiencies have been stronger + quicker than expected, driving a record EBITDA margin in H2 (7.2%, +500bps). Capacity has also been created, which will supports future growth with only modest further investment. At the same time G4M has pivoted from cash burn to cash generation. After a strong start to FY21, helped in part by lock-down, and with last year’s initiatives yet to annualise, confidence is running high. Valuation is extremely undemanding for this growth play.
AGM statement: upbeat
Companies: Sumo Group
Warpaint has issued a brief, but positive, update alongside its AGM today. Sales have been at a higher level than anticipated in H1, albeit significantly below the prior year due to the pandemic. In line with management’s original ambitions, there has been an improvement in gross margin. Together with lower costs, which the furlough scheme has contributed towards, this has helped the group deliver a positive EBITDA in the half, with no erosion of cash. This is a good outcome and ahead of general market expectations, we believe, albeit there is no guidance or consensus for the year ahead.
Companies: Warpaint London
Games Workshop’s (GAW) interim results are ahead of expectations. The highest rates of revenue growth were achieved in the channels with the highest operating margins, ie Trade (40% margin) and Online (64% margin). This has produced a strong improvement in free cash flow generation and ROCE has improved from 96% to 111%. We upgrade our forecasts for FY20 and FY21 by a further 3% following the 9% upgrade in November. Our DCF-based valuation increases by 11% to 5,748p.
Companies: Games Workshop Group
Gear4music’s FY2020 results reflect the positive momentum of the company’s announcements so far this calendar year. The data re-confirm brisk sales growth but in our view improved profits and profitability is the salient story. Moreover, with an online distribution focus, a well sourced product range and clear evidence that its logistics are being run more efficiently, the company’s ability to deliver positive newsflow looks increasingly sustainable. FY2021 started on an exceptionally strong note.
Autins has reported interim results consistent with its trading and COVID update at the end of March 2020. The first five months performance was ahead of management expectations and Q2 saw the Group achieve the majority of its targeted £2m p.a. cost savings, materially lowering the Group’s breakeven point. Automotive deliveries have restarted after a significant fall off in demand - all Autins’ sites were closed on 22nd March 2020 - and with PPE equipment orders building, 50% of the workforce has returned. The term sheet for a £2.75m CBILS loan has been agreed and the Group’s modelling of potential downside scenarios, including £1m of permanent liquidity headroom, shows that Autins could withstand an extended downturn along with the impact of other identified risks. The Group’s liquidity headroom looks to have improved further with the extension of UK & overseas support schemes, growing PPE sales and current trading volumes ahead of its downside scenario. Guidance remains withdrawn with FY2020 results set to be impacted by a significant reduction in H2 revenue. Nevertheless, with costs reduced and an opportunity pipeline of over £40m (incl. Neptune £30m) and a building conversion rate, Autins is now positioned to deliver a strong recovery in profitability.
Companies: Autins Group
Warren Buffett once said that as an investor, it is wise to be ‘fearful when others are greedy and greedy when others are fearful’. Fear is not in short supply right now.
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COVID-19 update: div. suspended, expect downturn in orders
Companies: Headlam Group
The phased reopening of Walker Greenbank’s two manufacturing facilities (both in the UK) is underway with Standfast & Barracks already operational and Anstey restarting this week. The company’s business model is such that near-term activity levels can be rebuilt gradually. It may also support new business development in the UK in due course compared to overseas supply sources. No new financial information was provided ahead of the company’s scheduled FY20 results announcement on 30 June, at which point activity levels during FY21 to date should also be disclosed. Our estimates remain suspended at this time.
The company provided a solid update, stating that trading was “comfortably in line with market expectations”. Sumo plans to accelerate acquisitions since recruitment is expected to “remain challenging for some time”. We believe the change is marginal and see acquisitions well supported by Sumo's disciplined acquisition criteria, proven integration process and balanced earnout structures. Sumo remains focused on delivering earnings accretive acquisitions. We make no changes to forecasts and continue to highlight Sumo’s low valuation multiples relative to peers.
GaaS and eSports a welcome boost; Buy