McCarthy & Stone PLC’s (MCS) Margins Improve In The Second-Half
Retirement homebuilder McCarthy & Stone PLC (LON:MCS) said revenue increased 4% to £660 million in the year to Aug’17 as average selling price jumped 3% to £273k. The company’s operating margin jumped 7% against the previous half. Despite EU referendum in June’16 and General Election in June’17, the homebuilder saw slightly higher legal completions, while forward sales stood at £141 million, nearly 20% higher than a year ago. There has been a “strong upward momentum” in selling prices and margins in the second-half, said MCS. MCS has forged a strategic relationship with Places for People to tap into what it calls a growing rental market. The company sold 126 apartments, to be rented at private open market, through a specialist retirement fund managed by Places for People’s fund management business. The company remains optimistic about achieving 3,000 homes per annum target in the medium-term. Build activity started at 73 sites against 54 in the previous fiscal. MCS expects 80 new releases in this fiscal with first occupations to expand in the second-half as per its build programmes. MCS said demand for high-quality retirement housing remains strong. It’s the only housebuilder of its size to receive a five star rating in Home Builders Federation customer satisfaction survey for 12 consecutive years — more than 90% of its customers would recommend a friend. Shares of the company are down nearly 20% since its late-2015 listing as strong double-digit growth slowed to low single-digit. The future seems brighter — the sell-side analysts covering the company expect MCS to deliver 13% top-line growth in FY’18 and nearly 15% in FY’19. Largely owned by institutions, MCS, with an above-4% yield, appears fairly valued at an enterprise value of 9.7 times its core earnings against the industry’s 6.9x multiple. While MCS delivers a net income margin to the tune of 11% against the industry’s 16%, its double-digit top-line growth in the near future compared to its average peer’s low single-digit growth explains the premium.