One of the key strategic ambitions of this group is to be recognised as the most trusted large private provider working in housing with the public sector.
News likely to be given out by the company within the next few weeks will show just how it is succeeding towards its aim.
A very big player
Mears Group (LON:MER) already handles the maintenance of around 10% of the total of UK social housing.
Furthermore, for local and central government it also manages over 10,000 homes.
Social Housing is growing apace
Two weeks ago, the Regulator of Social Housing published statistics about the social housing sector for both private and local authority registered providers, including stock ownership and rents as at 31 March 2022.
Returns from all registered providers of social housing show that the sector owns 4.4 million homes across England, with a net increase of over 31,000 social homes in the year.
Of the 4.4m units of social stock owned by RPs, private registered providers own 2.8m units while local authority registered providers own 1.6m units.
It really is a growing business and that is where Mears Group has its sights.
‘A safe pair of hands’ – building a resilient business
Another of its key strategic aims is to maintain and grow a resilient business with long-term partnerships, a strong balance sheet, along with a committed, engaged workforce.
Employing over 5,500 people, the group works with its clients to help develop, fund and implement innovative housing solutions.
The company is the largest provider of repairs and maintenance, and regeneration services across the UK.
As David Miles, the group’s CEO, has stated:
“A desire to make a positive difference wherever we operate has always been at the heart of our business. It was 30 years ago when we were a small maintenance contractor with a single van; and it still is now we are a truly national company.”
Its history
The Mears story began in 1988 when a little-known maintenance contractor in Gloucestershire, with a tiny work force, took its first steps as Mears Limited.
Within four years Mears won its first local authority contract and achieved a remarkable £2.5m turnover.
I first came across the Mears Group, way back in 1996, when it floated on AIM under the guidance of Bob Holt. The group’s shares were then around 10p.
It then had some 83 employees and was turning over £12m annually.
Under his stewardship the group expanded substantially, growing its order books exponentially along the way. David Miles joined Bob soon after the float, having come from a competitor, the Mitie Group.
Ups and Downs
Like any business it too has endured various ‘ups and downs’, making good decisions and some not so kind.
Within ten years the group’s turnover was up to £203.5m, while its order book was around £1bn. Its shares were then up to 345p.
In 2007 it went into the domiciliary care sector, taking its employee number up to 5,000.
By 2012 upon the acquisition of Morrison, the heads count was up to 15,000 and its shares were 290p.
After having peaked at 520p in the Spring of 2017 the shares closed the year at 410p.
In 2018 the housing related activities of Mitie were acquired.
In July of that year it was announced that Bob Holt, who had built the group up to its then stature, was going to resign from the Board in a Planned Succession move.
By February 2020 the group had disposed of its stand-alone domiciliary care side and reduced its staffing down to just 6,500. The group’s shares were then around 295p.
That year proved to be very trying for the group, like so many other companies due to Covid.
The pandemic hit the business and its shares were down to 105p by October 2020.
But it ended that year by being a singularly focussed Housing specialist, with a portfolio of high-quality contracts, a strengthened balance sheet and a hopeful future.
And its shares were up to 160p.
At that time its order book stood at £2.6bn, it ruled off the year with £805.8m revenues and an adjusted pre-tax loss of £3.4m.
The start of the recovery
In March the group presented witness that it was truly in recovery mode.
For the year to end December 2021 it reported sales up 9% at £877.4m, with adjusted pre-tax profits of £25.6m. Its earnings came out at 18.23p (loss of 2.29p) per share, enabling it to resume dividend payments of 8p per share.
What is more, the group started the current year with excellent revenue and profit visibility.
That was confirmed in early August when the group’s interims were declared, showing half-time revenues advanced to end June of £485.0m (£443.7m), with a 62.7% advance in profits to £18.1m (11.1m) and a trebled earnings figure of 12.70p (4.13p) per share. Even the interim dividend was up to 3.25p (2.50p).
The first half displayed excellent growth in sales, margins, profits and cash, which was £89.9m, against just £54.6m six months earlier.
Recent small but strategic acquisition towards decarbonisation
In the middle of August this year, the group acquired IRT Surveys for £4.1m.
The Dundee-based company provides a range of data-led services focussed on addressing fuel poverty, decarbonisation and energy efficiency.
With over 30 Registered Social Housing provider clients spanning the UK and having surveyed over 350,000 domestic properties, it looks like an instant fit into the group’s service offering.
Mears believes “there are significant opportunities in the structurally growing field of carbon reduction. The requirement to decarbonise an ageing housing stock, especially in affordable housing, is accelerating in the current environment given the significant increases in energy costs, and the agenda to meet the Government’s targets of achieving net zero by 2050.”
Current year outlook – continued growth
Within the next few weeks, we will get an indication of the first half growth having continued strongly into this current period, when the company issues its Trading Update for the year to end December.
Consensus estimates suggest revenues of £914m (£878m), pre-tax profits of £31.9m (£25.6m), with earnings of 22p (18.2p) and paying a 25% increased dividend of 10p (8p) per share.
Well supported equity
There are almost 111m shares in issue, currently capitalising the group at around £210m.
Professional investors in the group’s equity include Shareholder Value Management (10.3%), Artemis Investment Management (10.2%), Fidelity Management & Research (9.90%), Premier Fund Managers (8.20%), Liontrust Asset Management (7.39%), Segall Bryant & Hamill (7.14%), Heronbridge Investment Management (5.48%), Threadneedle Asset Management (5.30%) and LOYS (5.10%).
Conclusion – shares too cheap on 8.6 times pe
At just 189p Mears Group shares have very strong investment appeal.
Trading on only 8.6 times current year earnings, that is far too cheap a rating for such balance sheet strength, the size of its order book and its profit potential.