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.

Associated British Foods group adjusted operating profit jumped 42% to £1.4bn in their 2022 full year with a bounce back in Primark doing the heavy lifting in profitability.

All business segments enjoyed an increase in revenue while all segments apart from the grocery segment saw adjusted operating profit increase.

The retail segment – representing the Primark – revenue increase to £7.6bn, up from £5.5bn in the year prior.

Primark has been reliant on retail footfall to distribute their value clothing and were particularly impacted during the pandemic. A sharp increase in the number of the shoppers visiting their stores was instrumental in sales recovering in 2022.

The group have seemingly learned their lesson from the pandemic and have emphasised their push into online sales by improving their website and Click and Collect launching in 25 UK stores.

Despite the rebound in sales, analysts pointed to a big decision on pricing as cost’s increase while economic conditions become ever softer.

“Talk about a comeback. Associated British Foods’ sales and profit have jumped for joy like a shopper finding an absolute bargain. The company is fighting back from Covid with a vengeance, with its Primark chain seeing a big jump in sales as the world returns to a more normal state post-pandemic,” said AJ Bell investment director Russ Mould.

“The decision to now hold prices in Primark and sacrifice some margin as inflation remains high shows that it cares more about its customers than profits. It’s a calculated move which Primark hopes will earn it some with goodwill with customers as the company which understood the financial pressures people are under.”

Associated British Foods shares were trading 4.7% higher at the time of writing and were one of the best performers on the FTSE 100.

After the disruptions experienced due to the invasion of Ukraine, Coca-Cola HBC has bounced back with strong volume growth and the Developing market segment organic revenue jumping 23.1%.

The Established segment organic growth was 19.3% while the Emerging segment was down 6.2%, but grew by 17.7% excluding Ukraine and Russia.

Reported net sales revenue was up 26.9% in Q3 as the newly integrated Egyptian business added 13.4% to volume growth.

“So far we have seen limited evidence of changing consumer behaviour, but are alert to this possibility and can adapt quickly if needed. We are mindful of the impact that the challenging environment has on our consumers,” said Zoran Bogdanovic, Chief Executive Officer of Coca-Cola HBC AG.

“At the same time, we take a responsible approach to pricing and mix decisions as part of our revenue growth management framework, while continuing to provide value to our shoppers and customers. As a result of this mindful approach, we are encouraged to see consistently strong performance on price / mix, alongside continued share gains, and that we remain the number one contributor to revenue growth within FMCG across our retail customers.”

Coca-Cola HBC shares surged 3.5% in early trade on Tuesday as the group said they expect EBIT to be in the range of €860 to €900 million for 2022.

Persimmon has signalled the culmination of economic uncertainty and rising mortgage rates has began to impact sales and the UK housebuilder has said they are now entering a ‘challenging period’.

Persimmon shares were down as much as 8.3% on Tuesday morning.

Rising mortgage rates were central to the uncertainty around trading at Persimmon and their key sales metrics have steadily deteriorated.

Build rates were 20% ahead of last year but the questions will be asked around their ability to sell the newly built homes. Persimmon cancellation rates increased to 28% from 21% in the preceding 12 weeks from 1 July 2022 highlighting adverse buyer behaviour in the face of worsening economic conditions.

Persimmon sales

Persimmon’s net private weekly sales rate per outlet has fallen to 0.48 in the six weeks since September, representing a sharp drop from the 0.6 average rates 1 July 2022 to 7 November 2022.

“Rising interest rates and broader economic uncertainty are clearly impacting mortgage lending and customer behaviour and this is reflected in our recent weekly sales rates and forward sales position,” said Dean Finch, Group Chief Executive.

“Persimmon enters this more challenging period as a five-star builder, with average selling prices below the market average, high quality land holdings, and a robust balance sheet. The recent strengthening of our land holdings with disciplined investment will maintain our industry-leading embedded margins.”

Housebuilders also now face the pressure of the Help to Buy scheme being closed. Persimmon said around 20% of their sales were made using Help to Buy.

Falling house prices will do Persimmon no favours with Halifax saying average UK house prices fell 0.4% in the month to October.

Dividend

Persimmon has become one of the FTSE 100’s biggest dividend payers and today’s update has cast a shadow on their ability to maintain the current level of payouts, but stopped short of signalling any decision.

“Persimmon hasn’t given specific guidance on its dividends for this year, but reading between the lines of the new capital allocation policy, the double digit yield looks likely to moderate to a more realistic level,” said Derren Nathan, Head of Equity Research at Hargreaves Lansdown.

The FTSE 100 was broadly flat in Monday trade as investors assessed the situation in China and comments from Chinese officials on their zero-COVID policy.

Global equities rallied last week on rumours China had set up a committee to manage the end of their economically detrimental approach to managing the virus.

Over the weekend, Chinese officials said they would push on with lockdowns and quarantine in the immediate future, but there are at least signals they are considering a shift in policy.

The FTSE 100 was 0.1% weaker at 7,327 at the time of writing.

“The FTSE 100 on Monday largely consolidated its gains from the back end of last week as investors continue to weigh the latest hints on Chinese Covid policy,” said AJ Bell investment director Russ Mould.

“Hopes that Beijing was done with Covid lockdowns entirely certainly look premature but even a slight shift to a more pragmatic approach would be taken positively by markets.”

Nonetheless, Chinese equities rallied again overnight, and China-exposed FTSE 100 stocks gained. Goldman Sachs has predicted Chinese equities could rally as much as 20% if China’s COVID polices are scrapped.

Miners gain

Miners were among the top gainers on Monday in London with Rio Tinto adding 1.7%, Anglo American 2.6% and Antofagasta 1.8%. The sector has surged on Friday in line commodity prices.

Ocado was the top riser as it online retailer built on new contract wins last week and continued to rebound from heavy selling this year. Ocado shares were up 8% on the day but are still 59% down this year.

GlaxoSmithKline was the biggest faller, shedding 3.2%, after the pharma giant said it has received disappointing results from a blood cancer drug trail.

Bens Creek has issued a mining update outlining progress at their North American metallurgical coal assets including mining in a new permit area, plant facility upgrade, and steps to double daily production.

The updated ignited early interest in Bens Creek shares with the coal miner trading up over 10% in the first hour of trading on Monday.

However, as the session progressed, Bens Creek shares faded the early rally and traded just 2% higher at 24p at the time of writing.

After a blistering start to life as a listed company, Bens Creek shares have suffered dearly since the highs around 100p this year.

The key data from today’s announcement is the 2,500 tons of run of mine coal production in a single day at a higher clean coal recovery of 62%.

Investors will be looking forward to production increasing over the next year as capacity is improved.

The Bens Creek CEO summarised the mining update saying he was ‘confident that 2023 will be a good year for Bens Creek’ as the measures bear fruit.

“The set up to allow us to move from a contracted fleet to an owner operated fleet with two highwall miners is nearly completed.  This, together with the remediation of the infrastructure (from what was a previously idle mine) and the commencement on the underground mine for the creation of a first walking super section, is nearing completion,” said Adam Wilson, Chief Executive Officer of Bens Creek.

“An update on resources and the issue of a new mining permit have taken place at an expedited pace over the last twelve months and we remain confident that 2023 will be a good year for Bens Creek. The regular train deliveries and inventory build are now expected to commence alongside the increased production. As with all mining projects, more production spreads the cost across more tonnage and thus reduces the average unit cost per ton, thereby increasing margins.”

The Lloyds share price has remained frustratingly subdued since their earnings updates a couple of weeks ago and the dark clouds gathering above the UK economy suggest Lloyds shares could stay depressed in the immediate future.

The capital appreciation element from investing in Lloyds may be postponed as we move through the winter months into the spring, at which time we may see a shift in monetary policy, lower inflation rates, and overall market sentiment.

Lloyds shares may trade within their 40-43.5p range for an extended period meaning investors would have to rely on dividend income as compensation for the wait.

Third quarter profits at the bank were robust enough to support the share price, but provisions for bad debts were a warning of economic uncertainty.

However, there is undoubtedly the chance Lloyds jump back above 50p on positive developments in the UK economy, and the 4.7% Lloyds dividend yield adds an extra attraction for investors.

Lloyds Dividend

The bank has gone ex-dividend in early to mid April in the past two years and investors will be eyeing their final dividend payout next year which makes up the lion’s shares of their payout during the year.

Lloyds paid 1.33p as final dividend earlier this year and investors will be hoping this is at least maintained after the benefits of higher interest rates on profits.

Much will rest on the health of the UK economy and the level of future provisions Lloyds will have to make for bad debts, as well as demand for mortgages.

News today that UK house prices were falling will be a cause for concern, but many experts predicts any downside in UK house prices will be minimal.

With a yield of 4.7%, Lloyds has a better yield than the majority of FTSE 100 shares and is well covered at 3.9x. This means there is plenty of space to increase the dividend – should profits hold at current levels.

Lloyds share price was trading at 42.7p at the time of writing; up 1.7% on the day but down 10% year to date.