Is Inland Homes worth 40% more?

A strong first half has supported Inland Homes' rerating since the autumn, with the shares trading 30% higher. The number of units under completion has rocketed and the housebuilder still has a substantial landbank. That could mean significant upside, according to one analyst.

Inland completed 199 residential units during the six months to December, up more than threefold on the year before. A third of these have been bought through the Government's Help to Buy scheme, although the average selling price fell 12% to £239,000. And despite failing to sell any land during the period, the company does expect to offload a number of sites in the second half.

The landbank looks promising, too, with over 4,000 plots under management. Inland has been given the go-ahead to build over 560 plots, and another 557 residential plots are awaiting planning approval. Pre-planning applications have been submitted on 11 sites for around 1,700 homes, and the group is looking to build 1,500 units in another seven sites.

Chief executive Stephen Wicks said: "Inland Homes has delivered significant growth during the first half of the current financial year with record sales in both unit and revenue terms. The size of the business has expanded and is set to grow further with the new funding sources. We are well placed to deliver strong growth during the remainder of this financial year."

This update proves Inland's ability to source major sites with potential, says Nick Spoliar, an analyst at WH Ireland.

"With over 4,000 plots in the landbank and a strong stream of consents and applications, the model is operating strongly," he says. He keeps his 100p-plus sum of the parts valuation and is confident in his 80p target price, which reflects over 40% potential upside.

Last week, Spoliar explained that in recent months, "the share price has moved positively on the back of strong newsflow, breaking through the previous c.50p level. However we believe there is much further for it to go."

"As we anticipate continuing trading momentum in 2015, based on internal drivers and a generally benign external environment, we expect the re-rating to continue in the current year."

The broker expects adjusted pre-tax profit of £12 million in the year to June, giving adjusted EPS of 4.4p, rising to £14 million and 5.2p in 2016. That puts the shares on a forward PE ratio of 13, falling to 11 on next year's estimates.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.