MJ Gleeson (GLE)

Price: 495p

Market cap: £280 million

We originally tipped MJ Gleeson (GLE) at 438p back in May 2023, which wasn’t quite the low but was in time to catch the run all the way up to 650p last October.

Today, the shares may not be quite as cheap as they were two years ago, but the outlook is clearly a lot better, not just for Gleeson but for the whole housebuilding sector.

SOLID FOUNDATIONS

Gleeson Homes focuses on providing high-quality, genuinely affordable housing across the North of England and the Midlands, with an average three-bed home selling for £170,000 or less than half the asking price of the average property coming to market this month (£368,000) according to the latest Rightmove (RMV) survey.

For the year to June 2024, the company sold 1,772 homes, slightly more than the 1,723 sold in the previous year, with housing revenue rising 2.6% to £329 million suggesting the market has stabilised.

During the year, the group signed its first partnership agreement, with a second agreement inked in August 2024, complementing its open-market business, reducing risk and leveraging economies of scale while helping accelerate growth. For the uninitiated, partnerships work involves teaming up with housing associations, local authorities, and private rented housing investors to advance projects that typically have a lower proportion of homes for private sale compared to traditional developments.

In the six months to December 2024, the number of homes sold reached 801, 4% more than in the prior-year period, while housing revenue rose 10% to £157 million despite a subdued new-build market.

The homes business opened eight new build sites and 11 new sales outlets, and is on track to grow by 10 sales outlets per year in order to achieve its medium-term goal of annual sales of 3,000 units.

The order book currently stands at 597 plots, up from 559 in June 2024, while the pipeline of sites purchased, contracted subject to planning or with terms agreed stands at 18,731 plots across 174 sites.

Although realistically no-one in the industry expects the Labour government to fulfil its commitment to build 1.5 million new homes in its first term, the revised National Planning Policy Framework introduced in December is a big step forward for the sector and Gleeson Land has already achieved three planning consents since the start of 2025.

POSITIVE MOMENTUM

In addition, the firm saw ‘early indications of an improving selling season’ with stronger-than-expected buyer interest in the first four weeks of this year.

Net reservation rates in January were up 45% to 0.77 per outlet per week. To put things in perspective, if the firm had 100 sales outlets open, and reservations were just 0.6 per outlet per week, it would already be meeting its target of 3,000 homes per year.

This positive start to the second half, on top of the momentum from the second half, means the firm is confident it will not only meet market expectations for the current year, but it will deliver ‘sector-leading growth underpinned by new site opening and a more stable planning environment’.

Gross margins are expected to rise as the level of incentives falls and selling price rise, and as the site mix improves with lower-margin offices closed and higher-margin ones opening.

Chair James Thomson is on record as saying the target of 3,000 homes per year could see profitability broadly triple from the current level as Gleeson resumes its position as the fastest-growing listed housebuilder.

In addition, as the government works out a new funding settlement with housing associations, Gleeson expects the partnership business to gain traction through the end of 2025 into 2026 and beyond, increasing in scale as well as number of sites.

ATTRACTIVE VALUATION

In terms of rating, the shares are trading on a 12-month-forward PE (price to earnings) multiple of 12 times and a price to book value of less than one times.

We wouldn’t typically describe that as ‘deep value’ but interestingly with the shares trading below 500p the stock has just been added to Stockopedia’s ‘Ben Graham Bargain Screen’.

This screen looks for companies with a market cap below the value of their net current assets, meaning that even in the unlikely scenario that a company were to collapse tomorrow, investors would still generate a positive return due to its underlying asset backing.

We prefer to use a CAPE (cyclically-adjusted PE) methodology, which suggests if earnings can get back to the underlying trend and reach 50p or more by June 2027 – consistent with analysts’ forecasts – the shares should be worth around 700p or 40% more than they are at present. 

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