- Homes operation shows higher sales but lower profits
- Reservation rates improve and land bank increases again
- Gleeson Land shows improved earnings
- Company continues to target two-third increase in housing completions (and a trebling in group profits)
- Shares trade at one-third discount to net asset value
“You would have thought that a company which specialises in land development and affordable houses in the North and Midlands of England would be well-placed, given the Labour government’s determination to cut regulation, increase housebuilding volumes and kickstart economic growth but life is not proving easy for MJ Gleeson,” says AJ Bell investment director Russ Mould.
“Profits fell sharply in the year to June 2025 and the share price has retreated to levels no higher than those seen in late 2014, but contrarians may see this as an opportunity given the company’s belief that profits could triple from here and the shares’ lowly valuation relative to the net assets on MJ Gleeson’s balance sheet.
Source: LSEG Refinitiv data
“The share price weakness reflects concerns over input cost inflation, regulation and the lack of funding for Housing Associations, as well as wider worries over housing affordability (even though MJ Gleeson’s own average selling price of £193,600 comes in some £100,000 below the national average), the pace at which interest rates will come down and the flaccid UK economy.
“Gleeson Homes did manage to increase revenues by 6% to a new high of £348 million, helped by increases in both completions and selling prices.
Source: Company accounts. Financial year to June.
“However, housing completions are still below 2021 levels and input costs remain a challenge, so the division’s operating profit fell by a quarter. That took the operating margin down to just 6.4%, and back to levels last generated during the Covid-blighted year of 2020, and way below last decade’s peak of 17.1%.
Source: Company accounts. Financial year to June.
“That record margin was reached in the year to June 2018, when Help-to-Buy supported around two-thirds of group sales, input cost inflation was benign, and builders had yet to take on costs and levies for cladding remediation. MJ Gleeson’s initial £12.9 million provision for remediation in 2022 is proving more than adequate for now, although management will doubtless have its eye on autumn 2026’s launch of the delayed Building Safety Act and the associated Building Safety Levy.
“It may therefore be unwise to assume that profit margins at Gleeson Homes will return to past highs any time soon, but management continues to target 3,000 completions a year, up from 1,793 in the year just ended. MJ Gleeson believes attainment of that goal could help group earnings to broadly triple, especially if profits at Gleeson Land improve from the £7 million in operating profit recorded in 2025 and expected again in 2026.
“A further increase in Gleeson Homes’ land bank means the company is preparing for an upturn in the housing cycle as and when it comes. A tripling of net profit, on the back of that two-thirds increase in housing completions and higher earnings at Gleeson Land, would imply net profit of some £50 million and a forward price/earnings multiple of just four times that sum, a figure that could prompt value-hunters to do some further research.
Source: Company accounts. Financial year to June.
“Such a profit advance would also lead to further increases in net assets and net asset value (NAV) per share at the company, even after dividend payments.
“MJ Gleeson already has a consistent record of NAV growth and the current stock market capitalisation of £205 million already comes in at a big discount to shareholders’ funds of £308 million, or a book value per share figure of 527p. At their peak in 2020, the shares traded at more than four times book, or net asset, value.
Source: Company accounts, LSEG Refinitiv data, Marketscreener, consensus analysts’ forecasts
“MJ Gleeson’s land operations mean it is not a pure play on housing, and that may be one reason why the shares’ valuation looks lowly relative to the other quoted builders, but the one-third discount to NAV per share is eye-catching all the same.
“The difficulty is spotting what may be the catalyst to persuade investors to revisit the stock, especially ahead of the November Budget. Lower interest rates and mortgage rates could help, as would a more upbeat economic backdrop.
“In the meantime, the net cash balance sheet provides downside protection and permits both shareholders and management to be patient, not that the company is resting on its laurels, as evidenced by restructuring work at Gleeson Homes under the auspices of 2024 Project Transform. A 2.8% forward dividend yield also means that shareholders are being paid to wait for an upturn in the housing cycle.”
