MJ Gleeson is ray of sunshine

A focus on delivering low-cost homes quickly cancelled the savage post-referendum plunge at MJ Gleeson, and a set of strong full-year results has pushed the housebuilder back close to all-time highs. It's rallied nearly 60% since June and is a rare bright spot on an otherwise gloomy Monday, but one broker reckons there is still another 22% of upside to unlock.

Developing low cost homes in the North of England and selling strategic land plots to housebuilders in the South, Gleeson's two-pronged business model is paying off. Revenue leapt by a fifth to £142 million in the year to 30 June and profit rocketed 63% to £28.2 million, although growth was a more modest 21% if you strip out restructuring costs in 2015.

Earnings per share jumped by a quarter to 42.6p and cash flows from operating activities doubled to £14 million, boosting cash and equivalents by 47% to £23.2 million. With return on capital employed improving by over two percentage points to 23.2% and net asset value per share up 11% to 283p, confident management increased the dividend by 45% to 14.5p.

Gleeson is benefiting from strong demand for low-cost homes; unit sales jumped a fifth higher to 904 homes during the year. It's opened two new regional offices and increased its land pipeline to 9,284 plots.

It's also expanded its geographical reach to triple the number of potential home buyers in the market. Higher house prices and a strong grip on costs have helped improve gross margins and the group had good visibility with forward sales to £50.6 million at 30 June.

"Gleeson Homes' strategic objective of 1,000 unit completions per annum is now well in sight and should be met in the current year," says N+1 Singer analyst James Tetley.

Housebuilders still want to buy land in prime locations from the group and management reckon demand will stick for its strong pipeline of sites covering 3,843 acres of the South of England. Revenue at the division rose by a third to £28.4 million and operating profit by 26% to £10.2 million.

Swiftly recovering from its post-Brexit sell-off, MJ Gleeson is back flirting with all-time highsAnd even as concerns rise over a delayed Brexit kick-back, management reassure investors that for now it has been "business as usual".

"This is no doubt in part a function of Gleeson's focus on low cost homes in the North and Midlands and is consistent with recent messages from most other housebuilders," said Tetley.

The analyst has given his profit forecasts a little boost to £30.2 million and 44.7p for 2017, although he doesn't rule out "another year of outperformance".

Swiftly recovering from its post-referendum sell-off, MJ Gleeson is back flirting with all-time highs. Bouncing 3% off its 575p support, the shares were changing hands for 607p Monday. Confident in the quality of Gleeson's business model, Tetley reckons the shares are worth 700p, which represents 22% upside. The group is N+1 Singer's "Best Idea for 2016".

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.