Like many of its peers, the homebuilding business is experiencing surging demand right now. Last year, the company reported a 14% increase in earnings per share across the group, and this year analysts have pencilled in a smaller, but still attractive 8.4% increase in profits for the year. And it looks as if Gleeson is well on the way to meeting this target.

Positive trading

It today updated investors on its trading for the financial year ended 30 June, ahead of full-year results, which will be released in mid-September.

According to the update, over the past 12 months the homebuilding division, Gleeson Homes has “delivered its largest annual volume growth selling 1,529 homes during the year, a 25% increase compared with the previous year’s total.“

It doesn’t look as if this division is going to slow down any time soon. Gleeson Homes is currently active on 69 building sites and anticipating an increase to 80 or more sites during the coming year, the trading update reports. Management reckons this business is “comfortably on track” to meet its stated volume target of 2,000 homes per year by 2022. The strategic land business is also seeing strong demand for its services. Overall, management believes Gleeson will “comfortably” meet City growth expectations for the year.

Looking at this growth, I think the stock is currently undervalued as it is dealing at a forward P/E of just 12.3. It also supports a dividend yield of 4.6%. With earnings per share set to increase by nearly 20% between now and 2020, I think a mid-teens earnings multiple might be more appropriate for the business. A net cash balance of £30m also leads me to conclude that the market is currently undervaluing this stock.

London-centric

Another property stock that I like the look of right now is Great Portland Estates (LSE: GPOR).

Over the past few months, shares in this London-focused real estate investment trust have drifted lower and are now trading significantly below its latest reported net asset value. Indeed, at the end of May, the company reported a net asset value per share of 853p, 22% above the current price of 700p.

It is difficult to see why investors are giving this company such a wide berth. It would make sense if the business were suffering from falling rents and rising vacancy levels, but it isn’t.

According to a trading update from the trust today, at the end of June, the company’s vacancy rate was just 4.2%, down from 4.8% at the end of March. Meanwhile, the property business has managed to increase its rent roll, settling seven rent reviews during the second quarter with an average uplift of 17.2%. Great Portland also signed nine new lettings and has 12 more under offer with a total potential income of nearly £5m.

These figures tell me that despite the market’s ambivalence towards Great Portland, the underlying business is still powering ahead, and that’s why I think this undervalued property champion could be a great addition to your portfolio.

The post Have £5k to invest? I’d buy these two undervalued property stocks appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns shares in Great Portland Estates. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

If they tick both of these boxes, then I can progress with the rest of my research process with the ultimate aim of buying the shares. 

Recruiter Robert Walters (LSE: RWA) is one such business that I believe meets both of the above criteria. Over the past 15 years, the stock has produced a total return for investors of 16.7% per annum, turning an initial investment of £1,000 into £11,000. It also looks as if the company can continue on this trajectory. 

Global growth 

Robert Walters recruits skilled professionals in industries such as financial services and technology, sectors that are likely to see continued high demand for skilled staff, no matter how many low skilled jobs technology replaces.

With operations around the world, it is ideally positioned to capitalise on the rising demand for skilled workers. Indeed, today the company reported that group net fee income for the second quarter of 2018 leapt 18% year-on-year. 

The entire group is growing with the most substantial growth coming from Robert Walters’s ‘Other International’ operations (excluding Asia Pacific and Europe), which saw net fee income rise 29% in constant currency. With the business firing on all cylinders, I’m excited to see what the future holds for the share price. 

At the end of June, the firm’s net cash balance was £22.9m, more than enough to support the current level of dividend, which is currently costing £6.1m per annum. While the dividend yield stands at only 1.9%, analysts have pencilled in payout growth of 15% for 2018 and 11% for 2019. With revenue growth in the double-digits, it certainly looks as if the group can meet these targets. 

A forward P/E of 16.4 might look expensive, but considering historical returns, and future growth potential, I believe that it is a small price to pay for this wealth creating machine. 

Huge opportunity 

Another firm that looks as if it meets the criteria for my retirement portfolio is homebuilder MJ Gleeson (LSE: GLE). 

This company has benefited tremendously from the current housing boom with net profit up nine-fold over the past six years. Shareholders have profited handsomely as well over this period with a total average annual return of 20.6%. The big question is, whether or not the group can continue to produce outstanding returns for investors? 

City analysts believe it can, or at least it can for next two years. Earnings growth of 11% is projected for 2018, and 10% for 2019. 

And I believe that over the long term there is a tremendous opportunity for growth here. Gleeson is still a relatively small homebuilder with only 1,225 homes completed for the financial year to the end of June. In 2017, management set out to double sales to 2,000 homes per year within five years, a target underpinned by the firm’s land bank of 12,852 plots. 

So the firm has the tools to keep earnings growing and with a balance sheet stuffed full of cash, there is also plenty of scope for dividend growth. The payout has already risen five-fold since 2015, and Gleeson’s yield currently stands at 3.7%. With further growth on the horizon, in my opinion, this is one company that’s undoubtedly worth extra research.

The post 2 overlooked small-cap dividend growth stocks for retiring investors appeared first on The Twelfth Magpie.

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• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

MJ Gleeson (LSE: GLE) is one of the UK’s mid-tier builders, but size hasn’t held it back. Since its initial public offering at the end of 2014, shares in the company have returned 63%, outperforming all of its major peers.

This outperformance looks set to continue according to analysts, with one group in the city branding Gleeson a “standout” UK housebuilder. The reason why analysts believe Gleeson could keep growing while its peers see a slowdown is because of the firm’s target market.

Growing market

Gleeson is the only listed builder of ‘low-cost’ homes, with an average build cost per house 60% below the sector average of £200,000. This low-cost target market means that gross margins for its homes are at the top end of the industry at around 33%, despite selling at an average of £126,000, below the sector average of £310,000. 

Put simply, Gleeson should be able to continue to offload its low-cost new-builds to first-time buyers who are priced out of the rest of the market, ensuring that the company can continue growing despite sluggish demand elsewhere. Analysts believe this low-cost orientation could allow the company to double or triple its housebuilding business’s sales over the next decade.

Top sector pick

All in all, the low-cost argument makes Gleeson look like an extremely attractive investment opportunity. While some analysts are worried about the state of the UK housing market, particularly how much longer home prices can continue to rise as wages stagnate, these concerns do not necessarily apply to Gleeson. As the company targets the lower end of the cost curve, it can be argued that through all economic environments, demand for its buildings will remain robust. While first-time buyers could be the target market today, if the market turns down, there will still be other customers looking for lower-cost options.

Unfortunately, the market has already realised Gleeson’s potential, and shares in the company are not as cheap as some of its peers. Indeed, at the time of writing shares in Gleeson are currently trading at a forward P/E of 13.5 falling to 12.1 for the fiscal year ending 30 June 2018. The shares support a dividend yield of 3.2% at present, and the payout is covered more than twice by earnings per share, leaving plenty of room for dividend growth or special payouts.

Conclusion 

Overall, if you’re looking for a play on the UK housing market, but are worried about the state of the industry as we move towards Brexit, Gleeson could be a solution. The company will continue to profit if home prices keep steadily rising and if the market falters, it’s better positioned than most to weather a downturn. The downside is limited , but the potential upside could be enormous.

The post A ‘standout’ housebuilder that analysts believe has massive potential appeared first on The Twelfth Magpie.

More reading

• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.