Questor share tip: Telford homes aims to double profits....again

London-focused housebuilder has sold houses three years in advance and this underpins confident profit projections, says Questor

The London 2012 Olympics has sent property prices in the east of the capital soaring. Credit: Photo: Bloomberg News

Telford Homes
301¼p+10¼
Questor says BUY

LONDON housebuilder Telford Homes [LON:TEF] doubled full-year, pre-tax profits and is so confident in the strength of the market it is aiming to double profits again by 2018, sending the shares up more than 4pc yesterday.

The Aim-listed housing group said that annual pre-tax profits were £19.2m, up from £9m a year earlier.

The reason the east London-focused housebuilder was so confident of doubling profits again was because it exchanged contracts on 515 houses in the year ended March 31.

That guarantees 98pc of the forecast sales for the year to March 2015, 70pc to March 2016 and 25pc to March 2017. The company added that all these sales were achieved without the assistance of the Government’s Help to Buy scheme.

“Our long-term growth plans are underpinned by the demand for somewhere to live significantly exceeding the supply of new homes in the group’s non-prime inner London locations,” said Jon Di-Stefano, chief executive.

Investors were rewarded with an 83pc increase in the annual dividend to 8.8p, with the final 5.1p payment going ex-dividend on June 25 and paid July 18.

The company has a strong balance sheet with net cash of £4.8m at the end of March, up from a net debt position of £34.4m a year earlier.

The housebuilder also has a strong pipeline of housing projects. Telford Homes raised £20m in June last year to take advantage of the booming London prices. The company estimates that the pipeline was worth £875m in future revenue at the end of March, up from £627m a year earlier.

The average price of houses sold increased to £400,000, up from £353,000 a year earlier. This helped increase Telford Homes’ operating profit margin to 17.1pc from 9.7pc last year.

Market consensus is for pre-tax profits of £20m next year on revenue of £165m. Earnings per share of 26.8p are expected for March 2015. That leaves the shares trading on a rather undemanding price earnings ratio of 11.4 times.

Sure, the shares are vulnerable to a bursting of the housing bubble, but that only remains a possibility, whereas these numbers are not in doubt. Buy.