Gleeson’s FY20 outturn was in line with expectations (forecasts reintroduced in July), reflecting the impact of the COVID lockdown on the fourth quarter. FY21 began with a record order book and demand remains strong, reflecting the quality and affordability of Gleeson’s homes. The 2,000 home target has been reiterated for FY22 and, for Strategic Land, there are signs that housebuilders are returning to the market. Gleeson has a unique offering and, in our view, is well positioned to meet its medium term targets and to deliver substantial growth thereafter.
Companies: MJ Gleeson Plc
Following the Q4’20 lockdown, Gleeson enters FY21 with a strong forward order book and ambitious site opening plans. This should underpin a significant recovery in profitability in the current year, allowing for a gradual return to previous build rates and some margin suppression from COVID-safe measures. We see the Group returning towards FY19 levels of profitability by FY22, as the 2,000 home target comes into sight. Broader market uncertainty clearly remains but growth plans are well supported, in our view, by Gleeson’s unique model and attractive market focus.
Today’s year end update confirms that FY20 has concluded in line with current market expectations, with no surprises just three weeks on from the last update. As we have heard recently from other listed housebuilders, demand appears to be coming back strongly (net daily reservations now at 80% of pre-COVID levels) and build activity is steadily improving (currently at 60% of pre-COVID levels and expected to reach 80% by September). The most striking feature of Gleeson’s update is the ambition to resume previous site opening plans (25 new sites targeted for FY21) and, thereby, to fulfil the strategic plan of completing 2,000 homes p.a. in FY22.
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.
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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Research Tree provides access to ongoing research coverage, media content and regulatory news on MJ Gleeson Plc. We currently have 162 research reports from 5 professional analysts.
Boohoo has released the now complete Independent Review into its UK supply chain in full this morning. Whilst a number of areas for improvement have been identified, there is no suggestion failings were deliberate or intentional and the chances required involve a relatively easily achieved realignment its of governance systems. We believe the Group remains well-positioned to lead the fashion e-commerce market in the future and can successfully implement an agenda for change in UK garment manufacturing.
Companies: boohoo group Plc
We initiate on Portmeirion and argue that it is in a better position than the current market valuation suggests. It has delivered a resilient first half and, following a strategy reset under the new CEO, it has much more enhanced capabilities with an improving model and profit outlook. Furthermore, Portmeirion is well funded with no balance sheet concerns. The shares trade on low spot multiples of 10x FY21 P/E with and 5x EV/EBITDA with a 9% FCF yield. A SOTP analysis based on peer/corporate deal metrics shows fair value towards 650p. Patient deep value investors should take a much closer look.
Companies: Portmeirion Group Plc
Today’s year end trading update from The Character Group (Character) highlights the Company’s resilience and innovation in a challenging international environment with the Group working closely with customers and distributors to maintain trading at satisfactory levels. Indications remain that the second half to August 2020 will produce a profit at least equivalent to H1’s adjusted £2.5m before tax. The Group also has the benefit of a strong balance sheet with significant cash balances and no debt except the usual working capital facilities, much of which remains unused. We are pleased to be able to reintroduce forecasts that were suspended in March due to the uncertainty surrounding the COVID pandemic.
Companies: The Character Group Plc
Today’s statement reveals incredibly robust Q1 trading across the Group’s brands and regions, with a positive outlook and guidance reinstated for the remainder of the financial year and beyond. In addition, the Group has announced the acquisitions of Oasis & Warehouse, bringing two well-recognised and complementary brands onto its platform. We believe the unprecedented disruption resulting from the COVID-19 pandemic has accelerated the channel shift to online where we see BOO as the clear winner, with an established and leading model positioned to consolidate the market.
Tern plc* (TERN.L, 8.0p/£24.1m) | Corero Network Security (CNS.L, 8.25p/£40.8m) | Eagle Eye Solutions Group plc (EYE.L, 288p/£86.9m)
Companies: TERN CNS EYE
The interims reflect COVID challenges, which reduced order intake, and the acquisition of SCL. A milestone three-year agreement with a UK-based EV OEM was recently awarded, potentially worth up to £38m, which substantially underwrites further growth prospects. In the short term however, we reduce our FY20 forecasts, although with the EV contract kicking in next year, we see good growth coming through.
Companies: Trackwise Designs Plc
Trackwise Designs has signed a three-year product manufacture and supply agreement with a UK electric vehicle OEM. The agreement is potentially worth up to £38m in total, subject to pricing revisions, and will generate up to £5.0m in revenues in FY21. This will be the first full series production of flexible circuits incorporating Trackwise’s Improved Harness Technology (IHT). The agreement represents a step change in sales as total revenues for H120 were £2.4m, of which IHT was only £0.3m.
Tern reported a stable NAV per share of 7.0p at 30 June 2020, compared with 6.9p a year earlier and 7.0p at the end of 2019. Over the six months to 30 June 2020, an exchange gain on the US dollar-based valuation of Device Authority offset expenses incurred during the period and there were no major liquidity events triggering portfolio valuation uplifts. However, in the half-year, the four principal portfolio companies achieved a 62% increase in aggregate turnover versus H1 2019, demonstrating strong progress despite the economic disruption caused by COVID-19. Employee headcount at portfolio companies – another important indicator of growth – increased by 7% in the half-year, reflecting the focus on cost control during the period. Tern held £0.8m in cash at 30 June 2020, boosted by a £1.5m raising in July, providing scope for new investments to be made in the coming months.
Companies: Tern Plc
Boohoo Group has announced an upgrade to FY20 guidance on the back of continued strong trading momentum over its second quarter ended 31 August 2019. Strong revenue growth across the Group’s key brands (boohoo, boohooMAN, PrettyLittleThing and Nasty Gal) confirms the Group’s multibrand strategy is bearing fruit, with fears around potential cannibalisation firmly allayed. Top-line outperformance is driving operating leverage at Group level, enabling it to maintain full year EBITDA margin guidance at 10% despite the ongoing investment being made in the three brands acquired in the first half. Today’s announcement represents an impressive tenth consecutive upgrade in management guidance over the last three years, as the Group continues to outperform the market and consolidate its position as a leading multi-brand fashion ecommerce platform.
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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Independent review launched: The Boohoo Group has announced the launch of an immediate independent review of its UK supply chain, intended to identify any areas of risk and non-compliance and to further strengthen the Group’s compliance procedures to ensure similar allegations will not recur in the future. The review is to be led by Alison Levitt QC, a highly experienced advocate who has previously reported on complex issues, including safeguarding enquiries. Boohoo has also announced an initial additional £10m investment in ensuring any supply chain malpractice is eradicated and is accelerating its independent third-party supply chain review with ethical audit and compliance specialists Verismo and Bureau Veritas.
The COVID-19 pandemic has had a significant impact globally in many areas. While primarily a health issue, it has had wide-ranging implications for stock markets, which have now rallied after the plunge in share prices in mid-March when the full severity of the emerging pandemic became more widely appreciated. Nonetheless, the FTSE 100 Index remains almost 20% off its late February 2020 figure.
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The most significant of several 2020 contract wins was announced on 14 September, from a new global customer, OEM 8. New order momentum is rising significantly. SCE’s position as one of only two global manufacturers of a new automotive component – carbon ceramic brake discs – is bringing a series of major opportunities. As a consequence of OEM 8, our 2022 sales estimates double. To be winning such orders shows that these exacting clients embrace SCE’s product, its robust supply chain and manufacturing. SCE also provides a £0.4m upgrade on recent sales revenue.
Companies: Surface Transforms Plc
The company has announced a major milestone contract agreement, its first for full series production of IHT products. The contract is with an Electric Vehicle (EV) manufacturer, with a maximum revenue value of £38m over the next three years. Recent market headwinds have understandably resulted in some slippage in half-year revenues and a reduction in profit. This is a significant milestone production agreement, with huge future upside potential from the wider adoption of IHT flexible printed circuit boards.
Trackwise Designs has developed a proprietary, proven technology, IHT, for manufacturing extremely long, flexible circuits that can replace conventional wiring harnesses. This disruptive technology is applicable to many industries including electric vehicles (EVs), medical devices and aerospace. Trackwise has already manufactured prototypes for customers in each of these sectors and received its first series production order from an EV manufacturer this September. Since IHT is an adaptation of the proven technology Trackwise uses for making advanced printed circuits, IHT has the transformative potential of a new technology but with much less risk.
