Mears Group – latest Update boosts its attractions
Last Friday morning saw the Mears Group (LON:MER) issue a Trading Update, reporting that it had experienced strong trading in the first five months of its financial year, with continued elevated revenues, improving operating margins and excellent cash performance.
As a result of that continued strong momentum, the group, which provides services to around 10% of the UK’s social housing stock, now expects full-year profits to be materially ahead of current market expectations.
Mears is the leading provider of services to the Affordable Housing sector, providing a range of services to individuals within their homes.
The group manages and maintains some 450,000 social housing homes across the UK working predominantly with Central Government and Local Government typically through long-term contracts.
Mears currently employs around 5,500 people and provides services in every region of the UK.
In partnership with its Housing clients, it also provides property management and maintenance services.
The company has extended its activities to provide broader housing solutions to solve the challenge posed by the lack of affordable housing and to provide accommodation and support for the most vulnerable.
Following a period of strategic reorientation, the group is now unequivocally focused on being the leader in the UK in providing high-quality housing services to the public sector.
That focus distinguishes the group from many of its peers who operate broader businesses.
It is also leading some Local Authorities and Housing Associations to discuss with the company about ways in which it can support their housing repair operations.
Finals to end 2022
At the end of April the group reported its results for the 2022 year showing a 9% year-on-year growth in sales to £959.6m (£878.4m), while its adjusted pre-tax profits were 37% better at £35.2m (£25.6m), reflecting an increase in its operating margins at 3.8% (3.4%).
Its earnings came out at 24.51p (18.23p) per share, some 34% better which in turn encouraged a 31% hike in the group’s dividend per share to 10.50p (8.00p).
At that time the group stated that its order book stood at £2.9bn compared to the 2021 figure of £2.4bn, boosted by contract retentions and extensions.
Sales per Region and Business
The 2022 Trading Year saw the group generate £959.61m in turnover, all derived from UK business.
On a sales per business basis Maintenance accounted for £535.34m (55.8%), Management £405.78m (42.3%), while Development accounted for £18.50m of group turnover (1.9%).
There are some 110.4m shares in issue.
The larger holders include Fidelity Management & Research (10.0%), LOYS AG (9.2%), Premier Fund Managers (8.0%), Shareholder Value Management (7.0%), Heronbridge Investment Management (5.9%), Artemis Investment Management (5.8%), Milkwood Capital (4.5%), Dimensional Fund Advisors (4.4%), Huntington Management (4.1%), Liontrust Asset Management (4.0%) and Columbia Threadneedle Investments (3.5%).
AGM next week – another Update?
The group’s 2022 AGM is due to be held next week, on Friday 23rd June, when it is possible that we may well see another positive Update from the company.
Conclusion – ready to soon break above the 2020 High
In the meantime, the shares, which shot up 22p after the Update news, and closed steady at 285p last night.
I believe that they still look to be undervalued and very capable of soon breaking back above the 320p pre-Covid level that was achieved at the start of January 2020.
They peaked at 515p at around this time six years ago, on the back of even more decent corporate good news they could well be ready to climb a lot higher yet.
I have followed closely the development and progress of the £315m capitalised group for over two and half decades and never been disappointed in its management or its potential.
The Mears story continues to be ‘underplay and over deliver’ which is very good news for its shareholders.
Cognisant of the recent swift price rise for the shares, I am conservatively putting out a Target Price of 320p.