Although the UK property market is still fragile, there have recently been some tentative green shoots. The number of mortgage approvals rose to an eight-month high in March. And with inflation stuck above 4%, cash buyers are beginning to put their money in bricks and mortar to earn a better yield.
One firm that could benefit is housebuilder MJ Gleeson, which focuses on urban regeneration projects primarily in the northeast of England. The company cleverly snapped up land at bargain-basement levels during the downturn, which means it is all set to produce some bumper figures when things pick up.
Better still, this property minnow is dirt cheap, trading at 38% below its net tangible assets (NTA) of 186p a share. The shares seem to be factoring in the end of the world – particularly as the board has squirreled-away a cash pile of £19m (36p a share). February’s interim results were lacklustre. Yet even so, chairman Dermot Gleeson stated that, “although conditions remain difficult, Gleeson has achieved an encouraging increase in both site visitors and completions”. As for the outlook, he expects “to continue to achieve steady growth”. I would rate the group at 90% of NTA, which gives a fair value of 167p a share.
MJ Gleeson (LSE: GLE)
Admittedly, mortgage availability will probably stay tight for the rest of the year, and if interest rates are hiked then home values could fall again. Widespread uncertainty regarding employment prospects won’t help either – especially in the northeast where there’s a high proportion of public-sector jobs at risk.
On the other hand, the strong medicine dished out in 2010 by the board to reduce costs enables Gleeson to now offer first-time buyers great deals. Interestingly too, if you take a look down thefirm’s share register, you’ll notice that two activist investors – North Atlantic Fund and Guinness Peat – hold stakes of 18.1% and 6.6% respectively.
Eventually, I suspect both of these parties will want to exit. As a result, if there is an interested trade buyer running the slide over the firm, then a price over 170p would probably win the day.
And to oil the wheels further from a takeover perspective, Gleeson also owns development rights on 3,833 acres of valuable land in the more affluent south.