Telford Homes is in as strong a position as it has ever been in the 15 years since flotation. The company has a strong balance sheet, with an expanded equity base and significant headroom on its banking facilities, a large development pipeline and impressive forward sales position, and good levels of demand for its product and geography from a diverse group of buyers.
Telford Homes specialises in planning, designing and building developments on brownfield sites in London. The company is a hands on developer with in-house construction expertise. It builds apartments and houses in the main, but the nature of mixed-use inner city development means it also builds commercial property, schools, churches etc.
London has an international reputation as a growing, vibrant and important economy, with an excellent transport network and a stable and attractive property market. Its population is large and is expanding but there is a chronic shortage of new homes being built in an already undersupplied city.
The company has a £650m forward order book and this equates to over 60% of cumulative three years sales. This is the highest level of forward sales in the sector (relative) and in our opinion, we are at a stage in the cycle where a good level of forward visibility should equate to a higher than average PE/PNAV valuation.
The development pipeline is now in excess of £1.5bn compared to £0.6bn three years ago. In our opinion there is the potential to further expand this pipeline should management wish. With the successful £50m fundraising in 2015 and £140m headroom on its banking facilities it has the financial firepower to expand this pipeline further and there remains a number of opportunities in its locations.
Telford Homes is on a current year (12 months to March’17) PE of 8.3x, falling rapidly to 6.3x in the year to March ’18, and again to just 5.2x the following year. From a PNAV perspective it trades on 1.09x in 2017, falling to 0.98x in 2018, a 36% discount to the sector average.