Questor share tip: Property boom tipped to double Telford’s profits
04-21-2014
The shares are clearly at the mercy of the London housing market, which for now looks well supported
A builder carries bricks, using a builder's hod on a house under construction on a Barratt residential development in Horley, Surrey, U.K
The London 2012 Olympics has sent property prices in the east of the capital soaring. Photo: Bloomberg News
By John Ficenec, Questor editor
Telford Homes 337p Questor says BUY
Aim-listed London housebuilder Telford Homes is in something of a sweet spot, as not only is the Help to Buy scheme boosting house prices, but the London 2012 Olympics has sent property prices in the east of the capital soaring.
The company said that it now expects profits to more than double when it provided a preliminary update on annual results last week.
The company isn’t stopping there, though. It said it expects profits to double again by 2018, with a cumulative total of £120m in pre-tax profits in the next four-year period.
The company is forecast to make pre-tax profits of about £20m for the year ended March, giving earnings per share of about 23.8p.
That leaves the shares trading on a price/earnings ratio of 14.3 times. However, the consensus estimates for profit increases see the forecast p/e ratio fall to 12.3 times next year, and 10 times to March 2016, which is starting to look cheap. Such a sharp increase in profits doesn’t look that ridiculous.
“The London property market has remained buoyant, with demand from those wanting to live in London remaining well in excess of the supply of new homes,” Telford said.
It has exchanged contracts for the sale of 515 open market properties in the year and legally completed 492 open market properties in the same period, resulting in a strong increase in pre-sold position.
At March 31, Telford Homes was 98pc sold in terms of open market homes expected to legally complete in the year to March 31, 2015, more than 70pc sold for 2016 and more than 25pc sold for 2017.
The shares are clearly at the mercy of the London housing market, which for now looks well supported. Buy.