ST at IC18 Jun 2015 13:34
(INL: 71p), the specialist housebuilder and brownfield land developer, has pulled off a major land deal at its Drayton Garden Village development in west London. The company has sold 205 residential plots with planning permission to a major housebuilder for a cash consideration of £19m. Completion is scheduled for later this month.
This is the second major land deal in less than a month as the company previously announced the sale of 230 residential plots with planning permission across three brownfield sites at Queensgate in Farnborough, Gerrards Cross in Buckinghamshire and Woolwich in East London for total sale proceeds amounting to £20m. These deals can only highlight the significant value in the company’s land bank of 4,500 plots.
Indeed, excluding Inland’s investment in the former MoD site at Wilton Park, Beaconsfield and other joint ventures, the open market value of the company’s 1,656 plots of owned land could easily be in excess of £80,000 a plot, or more than double the carrying value in the company’s last set of accounts. The difference between book value and open market value on these land holdings alone is around £70m, a sum worth 35p per Inland share. In turn, it’s really not that difficult to make a case that once you mark all the company’s land holdings to market value, including the value tied up in land under option, then Inland’s underlying net asset value per share could be three times the 33.3p figure in its last set of accounts.
Moreover, as land is sold, and the hidden value of these land assets in the accounts is crystallised, then expect the company to make substantial profits. For instance, following the Drayton Garden Village disposal, analyst Nick Spoliar at brokerage WH Ireland upgraded his pre-tax profit estimate from £12m to £15m to produce EPS of 4.9p for the 12 months to June 2015. In fiscal 2014, Inland reported profits of £8.6m and EPS of 2.87p, so expect profit and earnings growth of north of 70 per cent when the company reports its final results in a few months time. We can also expect some decent upgrades to fiscal 2016 earnings estimates in due course too.
So with the shares making headway towards my 80p conservative year-end target price, and trading 30 per cent below analysts’ sum-of-the-parts valuations, I would continue to run your huge profits. Please note that I included Inland’s shares as one of my 2013 Bargain shares at 23.5p (‘How the 2013 Bargain shares fared, 7 February 2014), and have remained positive ever since. I last advised running profits when the share price was 64p (‘Decision time’, 16 April 2015).