Inland Homes – profit upgrades expected with the figures later this month

If you have not already realised it – this really is a stock not to be missed in 2022.

It has excellent management, masses of upside potential, is well-funded, has net assets almost twice its current price, has an order book in excess of £200m, with £3bn of developments on hand and yet is only capitalised at £122m.

Brownfield is attractive

Stephen Wicks could be announcing his ‘brownfield’ development group’s results for 2021 sometime within the next three weeks.

We already know that the private and partnership-housing group is very confident about its potential over the next few years.

A shrewd but versatile ‘asset-light’ strategy

It has an asset-light strategy to progress over those years, combining with local authorities, housing associations, institutions and insurance groups in funding and property disposal contracts.

Inland Homes (LON:INL) identifies the development sites, schemes out viable propositions, seeks and gains planning permissions before offering participation to such funders, thereby gaining good equity positions and a stream of contracted development in the years ahead.

With ‘third-party’ investors financing various of its schemes Inland needs to only make small cash contributions. As those schemes move forward, it is awarded ‘milestone’ fees funded by way of land disposal.

A good business balance

The group earns very attractive ‘asset management’ fees for securing sites and planning permissions on behalf of investors.

Overall, the group has a very good balance in its activities. It has several partnership-housing projects underway with a lot more to come. It also has homes for private sale, as well as selling-off consented building land.

In addition, it enjoys some £3m yearly rental income as a by-product of its activities.

The company builds open market and affordable homes on its sites, as well as trading off various chunks of surplus property with enhanced plot values to other developers, thereby generating cash for further development.

The demand from housing associations for delivery of ‘turnkey’ projects is very strong currently, so its massive land bank will help to satisfy future developments.

Bags of exciting scope

I really like the potential for Inland over the next four years, it has some very exciting developments on hand.

Some of its schemes afoot include: the Homebase site at Walthamstow (583 units); Gardiners Park Village at Basildon (700 units); Wilton Park, Beaconsfield (initially 304 units); the Wessex Hotel, Bournemouth (94 apartments); Carters Quay, Bournemouth (161 units); Merrielands, Dagenham (325 units with 364 also submitted); Cheshunt, Lakeside (1725 units); the list goes on with many other such sites.

At the Cavalry Barracks, Hounslow, it has a 36.7-acre site, one of the largest brownfield sites in London, where it is looking to develop 1,650 new homes, in a £600m gross development.

So often the housing projects also have commercial units, local community facilities and schools attached.

Strong order book, massive land bank, excellent strategic planning

I understand that the group’s partnership-housing forward order book currently stands at over £200m.

The group’s land bank is the foundation of its business, the current gross development value of its portfolio of interests is around £3bn.

As at the end of September it held 10,055 units, 3,689 with planning consents, while another 3,736 are held strategically longer-term.

Fast building-up of its ‘asset management’ business

A big plus is the emphasis that Wicks and his team are placing on the build-up of their ‘asset management’ side. Much of the capital for various of its projects is sourced from external investors.

Inland enters into a planning and management services agreement which typically requires the procurement of a relevant site, then using its considerable experience obtaining necessary planning consent, and proposing a plan for the disposal of the site, normally once planning permission has been secured.

As the projects are capital light, where its skills and expertise are the service, the schemes can obviously generate significant and attractive returns.

In 2022 the good news will be piling up

Stephen Wicks recently stated that: “The fundamental shortage of new homes in the South and the South-East of England continues and the interest from financial institutions in the build-to-rent market remains strong.

Having delivered a significant reduction in debt and implemented measures to improve margins across the group’s housebuilding activities, Inland Homes is well placed.”

2021 finals are due within next few weeks

Much more to come on this company before the month is out.

Wicks and his management team are really pushing their group sensibily into the near future, big profits are ahead without doubt.

I see some revenues rising to around the £200m/£250m levels, with between £20m to £30m being made in annual pre-tax profits over the next few years.

Broker’s View

When the group announces its results shortly, we can expect to see that the company’s turnover was up over 57% at £195m in the year to the end of September 2021 and that its pre-tax profit was several times that of 2020’s £3.7m.

Analyst Adrian Kersey, at the group’s broker Panmure Gordon, rated the group’s shares as a ‘buy’ with a price objective of 119p.

I expect that he will be upgrading his current year and 2023 estimates.

My View

Just think about the £3bn value of its land bank in relation to its tiny £122m market capitalisation – to me that instantly shouts total undervalue!

With its shares at just 53p I remain totally convinced that they are going to have a good run-up this year and could so easily double in value.

(Profile 29.10.21 @ 46.5p set a Target Price of 60p)