The Trading Update from this £208m capitalised UK housing solutions provider was a cheerful start to seasonal proceedings.
The group, which is responsible for maintenance on around 10% of the UK’s social housing stock, has enjoyed a stronger than expected second half of its current trading year.
In fact, it has come in with guidance to the market that both revenues and profits will be higher than anticipated.
Mears Group (LON:MER), which employs over 5,500 people, provides a range of outsourced services to the public and private sectors in the UK.
It offers rapid-response and planned maintenance services to local authorities; gas and repair services; and maintenance and repairs, capital works, energy investment, and regeneration solutions for public buildings, as well as grounds maintenance services.
The Gloucester-based company also provides housing management services, which include supply of affordable homes to public and private sectors, emergency and temporary accommodation services, affordable housing services, housing with care services, and housing services to government departments.
In addition, it offers house building services; and facilities management services to the public and private sectors, including defence estates, education, healthcare, public buildings, and commercial office accommodation.
Excellent final half-year
In this second half of its trading year to the end of this month, the Group has continued to experience strong trading.
It now expects that it will deliver revenues of around £950m and adjusted profit before tax of about £33.5m, both above the current range of recently upgraded market expectations by another 3-5%.
It is apparent that the better-than-expected trading performance has been driven by the continued elevated volumes within the Group’s Management-led contracts.
Average daily net cash for the 11 months to 30 November 2022 of c.£40m is also ahead of previous guidance.
Consensus estimates had previously suggested 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.
CEO David Miles stated that:
“I am delighted with the strong financial performance of the Group and the business remains firmly on track to deliver revenues and profit before tax for the full financial year above our previous guidance. Our market leading position, based on a clear strategy and resilient operating platform, is underpinning current momentum and positions the Group for further sustainable growth in the medium-term.
Outlook for 2023
The Group’s Management is confident in its outlook for 2023 and is focused on continuing to improve the operating margin and delivering strong cash generation.
Conclusion – shares are far too cheap on 9 times pe
Mears Group shares, which rose 5% on the Update news, have very strong investment appeal and are on too cheap a rating for such balance sheet strength, the size of its order book and its profit potential.
Trading at 196p the shares are on less than 9 times current year earnings.