wow

lse:inl

#1

those were worth waiting for - topped up. these seem massively undervalued


#2

Biscuit Barrel, "these seem massively undervalued "

I would agree with you, but by how much? Unfortunately, even over the weekend, I just haven’t had time to do the research I would like. But I will put forward what I have for comment and criticism and hopefully that will get us a bit further. I am adding to my holding this morning. I may well add further as and when I get the time to do more research.

The traditional way of comparing similar companies in the same sector is to look at their P/E ratios. The main problem with that is that the accounts have been ‘restated’, luckily the restated numbers are given in the 2015 results report.

Also, you are using an EPS figure from a few months ago. I couldn’t find any estimates for EPS during the year ending 2016 to start looking forward or to help measure a PEG ratio. So, for what it is worth:

sp at 30 Jun 14 48.25p (EPS 2.87 P/E 16.81) restated EPS 3.46 => P/E 13.94
sp at 30 Jun 15 70.25p EPS 14.67 => P/E 4.79
sp at 30 Oct 15 73.5p EPS 14.67 => P/E 5.01

A fair P/E in the sector could be anything from about 12.5 - 25, so why not a target price of at least 183.75p?

Pros
Brownfield specialist with large land bank which has increased from last year despite many plots with consent sold off. Over 5000 plots now held, but only about 20% or so have planning consent.

NAV 46pps as of Jun 30 2015, current price 73.5p. That NAV has already risen this year; there are early signs (4 months in) for the current financial year looking encouraging.

Cons
Average selling price? £264,000. Quite high. This tends to be measured in multiples of the average wage which does put INL on the high side compared with BDEV, PSN, Bovis. This is due to their target area being in the highest cost parts of the country, of course.

Borrowing appear to be well up. How sensible is that as we move toward a higher interest rate environment? Are the loans/borrowings at fixed rates?

AIM company (That itself puts some people off), with not the smoothest last few years behind it (judging by the accounts) when other builders have had continuous growth. Compare to Eg. TEF which was similar in size and also a brownfield specialist operating in London but which has performed twice as well at least over the last 5 years.

Doesn’t just build houses. Also performs consultancy, buys and sells plots and designs. Could be something of a jack of all trades which may not be the most profitable way to go.


#3

Hi Eadwig - good post - The NAV compared to market cap is the only concern I see here after a very brief look - at less than 50% it does not give much comfort should there be a downturn in the housing market - however the NAV is rising at an accelerated rate at about £10 million per year and rising which would narrow the gap if the sp stood still. A very interesting company - going to do some research and get the heads up from someone in the business down South - thanks for the tip.


#4

Good post thanks.

A few points to add…

Firstly, their current NAV is only calculated at cost - so any value since then is not included. So the value added from getting consent is not included. Their next set of results will change this so we will get a very different, and much, much higher NAV. The £15m exceptional gain was part of that revaluation so if that is repeated across the whole portfolio we will see what their landbank is really worth.

Secondly, p/e is not a good calculation because it ignores debt. I would use enterprise value / earnings instead to give a better comparison. But they still look cheap even after allowing for debt. I don’t see their debt levels as being anywhere near excessive so I am comfortable with their approach. I would actually be disappointed if they didn’t have any debt as that would be very inefficient as all of their capital would be tied up too quickly.

The difficulty we have in valuing Inland is that they are part developer and part housebuilder so which should we value them as? If we value them as a pure housebuilder then this will not take into account their large land bank when compared to their build rate. It would be interesting to calculate their land back in terms of number of years of build compared to other housebuilders (all of whom are on a forward p/e of under 10 last time I checked). But if we value their landback as a developer we should use the NAV as a fair price. But that would discount the housebuilding profits entirely. Once the new NAV calculation is in place then that should be a more accurate method. In the meantime, I think we have to treat them as a housebuilder.

These are currently my largest holding as I bought a few years ago at a much lower price. Still not selling, and tempted to top up but have resisted as I don’t want too many eggs in this one basket.

JL


#5

I am expecting NAV after revaluation at somewhere around 100p. I think you can check out Simon Thomson (inv chronicle) for a fuller calc of that.

EPS is somewhat obscured by exceptional gains but at an operating level strikes me that they are performing around the 7p mark.

So for me versus other house builders 7p12 as a p/e = 84p. Most house builders are trading around 1.4 book value (I think currently) so with NAV closer to 100p you would be looking at unto 140p. However, I don’t think Inland is quite comparable at a NAV level to other house builders thus I am looking for closer to 100p from them over the next year.
Interesting to see them falling though post results especially after a further sale of project at very profitable level . CEO sold £1m worth though so his will have had some effect. I am not so worried by this given his remaining holding is still high and he has limited windows in which to sell.


#6

“CEO sold £1m worth though so his will have had some effect”

Seems like a lot of that effect that has worked out of the price now (see price dip on high volumes below).

I hope the directors don’t make a habit of it as they own about 25% between them from memory. On the other hand, he created a very nice buying opportunity for anyone interested at the time. Unfortunately, I’d bought more a little before he gave us that opportunity.

That large land bank owned by INL (large relative to the company’s size), mostly meant for re-sale rather than building on themselves, must surely make them one of the big winners from the governments new housing policy intentions announced yesterday.

I would certainly be buying at this level if I wasn’t a holder. Hence, strong buy @70p, although if the US Fed raises rates around 16th Dec, there might be a sector-wide reaction giving a lower opportunity - despite the fact the Chancellor when interviewed this morning quite obviously isn’t expecting UK rate rises anytime soon.


#7

Does anyone know if INL qualifies as an AIM company for exemption from iht once one has held them for two years? (My assumption is that it does.)


#8

Best way to find that out is call Inland and ask to speak to Investor Relations. They should know!
Failing that try the London Stock Exchange.


#9

I have also made the IHT assumption on INL but it would be good to know for sure.

For what it’s worth, psinker, a contributor on LSE has confirmed IHT on ARBB:
“I was an executor for a deceased estate in 2014. We were granted Business Property Relief by HMRC on the ARBB shares so that no IHT was paid on that holding.”