Berenberg starts MJ Gleeson at 'buy', says it's a 'standout' housebuilder
Berenberg initiated coverage of MJ Gleeson at 'buy' with a 740p price target, calling it a "standout" UK housebuilder.
Construction & Materials
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16:59 26/04/24
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MJ Gleeson
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16:35 26/04/24
The bank said Gleeson has a cost leadership and market position that allows it to sustain profits at the high end of the sector and gives a clear path for continued growth.
"Its housebuilding business could easily double or triple in size over the next decade, in our view. Meanwhile, we think there is hidden value in its Strategic Land division, which, with recent transactions in the sector, could soon be realised. This forms the basis of our initiation."
Berenberg expects a sustained volume growth of around 10% a year at a time when other sector growth rates are generally slowing. It reckons the main constraint on this growth is management’s ability to recruit and train suitable site managers. As a result, it thinks there will be an upgrade to management growth targets at the company’s capital markets day on 5 July.
The bank pointed out that Gleeson is the only listed builder of "low-cost" homes, with an average build cost per house 60% below the sector average of £200,000.
"That results in gross margins in its Homes division at the top end of the sector at circa 33% despite selling at an average £126,000 compared to the sector on £310,000."
In addition, the bank said investors are undervaluing Gleeson’s Strategic Land division, with around 60p per share of value not recognised.
At 0955 BST, the shares were up 6% to 695p.