Interactive Investor

Insider: directors buy this housebuilder and a FTSE 100 high-flyer

Three companies have done well in recent months and share prices reflect that optimism. But recent boardroom buying suggests there could be more to come. 

25th March 2024 09:13

Graeme Evans from interactive investor

A £50,000 investment by the chair of MJ Gleeson (LSE:GLE) has backed the low-cost housebuilder’s prospects ahead of next week’s 9.8% increase in National Living Wage.

The 1 April rise is a significant one for Gleeson as a working couple earning at this level is able to afford a home on every one of the company’s sites in the North and Midlands.

The minimum wage hike comes as the Sheffield-based firm’s homebuilding operation sees “encouraging signs of recovery” in reservations ahead of the busier spring selling period.

The group, whose other division promotes land through the residential planning system in southern England, recently reported a 55% slide in profits to £7.2 million and cut the 2 April dividend by 20% to 4p as it looks to retain firepower for future land investment.

Its weaker performance in tough market conditions reflected margin pressure arising from increased sales incentives, as well as additional costs on a number of older legacy sites.

The shares have posted a sideways performance in recent weeks, having recovered from 353p in August to peak at 540p shortly after February’s half-year results. They closed last week at 500p, while chair James Thomson bought his shares on Wednesday at 511p.

He was chief executive between 2019 and 2023 before succeeding Dermot Gleeson, who retired at the end of 2022 after 47 years on the board and 28 years as chairman.

Thomson has a wealth of experience across the housing industry, having previously been in charge of Keepmoat Homes and chief operating officer at property firm DTZ.

His replacement as chief executive, former Vistry executive Graham Prothero, last month reiterated Gleeson’s 3,000 a year home completions target amid the support of an under-supplied market and strong underlying demand.

The medium-term ambition is based on increasing 2024’s forecast weekly sales rate of 0.43 reservations per site to 0.6 and growing sales outlets from about 65 to 100.

Prothero said: “The business has traded well in difficult conditions and is well-placed to capitalise on a recovery in the market and resume its exciting growth strategy.”

Peel Hunt noted recently that the shares trade at a 10% discount to tangible net asset value, with the gap for the housing business standing at about 20%.

The broker, which has a price target of 590p, said: “We view this as too cheap, given the uniqueness of the group’s model, high barriers to entry, and growth potential.”

Singer Capital Markets also retained its 590p estimate amid confidence in a second half recovery, adding that Gleeson’s niche focus positioned it well to resume its historic sector-leading growth.

It said: “Gleeson is one of only two small-cap housebuilders and offers growth potential over and above some of the more established UK housebuilders.

“As a result of its growth profile, regional focus and low price point, Gleeson has historically achieved a deserved premium rating to its peers.”

RBC Capital Markets added after last month’s results: “Stimulus comes and stimulus goes, but Gleeson meets the market where it arguably has most need.”

The company said recently that a couple on the National Living Wage will be able to afford a home costing £211,513, some 38% higher than Gleeson’s average two-bed home. It added the typical cost of £156 per week compared with £196 per week to rent.

Big buying at BAE 

The boardroom leaders of BAE Systems (LSE:BA.) and former Polypipe business Genuit Group (LSE:GEN) were among buyers last week as the shares of their respective companies continued to move higher.

The £181,000 investment by BAE chair Cressida Hogg took place on Wednesday at 1,319.75p, having seen the company’s valuation rise 42% in the past year and by 22% in 2024.

In another positive week for BAE, Barclays last week raised its target price by 200p to 1,450p and Australia chose the defence company to build its fleet of nuclear-powered submarines.

BAE, which makes equipment ranging from armoured vehicles to jet fighter components, last month reported record annual order intake of £37.7 billion. This pushed its order book to an all-time high of £69.8 billion, with adjusted profit up 9% year-over-year to £2.68 billion.

At Genuit, chair Kevin Boyd spent £50,000 on shares at a price of 418.9p. That compares with the level of 261.5p at the end of October as investors have backed the UK's largest provider of water, climate and ventilation solutions to benefit once trading conditions improve.

Results earlier this month showed that 2023 underlying profits fell 11% to £80.5 million, with further market uncertainty at the start of 2024 offset by trading in line with City hopes.

Analysts at Jefferies recently valued the shares at 479p, noting that a valuation of 14.4 times 2025 forecast earnings still offered upside to European peers.

Genuit shares closed last week at 431p, with BAE Systems at 1,363.5p.

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