Berenberg raises target price on MJ Gleeson

Berenberg said MJ Gleeson's upgrade, which formed part of a brief trading statement on Monday, was driven by price increases in housebuilding as the company closes the pricing gap towards fair market value, supported by price increases in the underlying market.

Alongside the "favourable pricing dynamic", Berenberg thinks MJ Gleeson's low-cost housing was "well-positioned" relative to demand and, as a result, that it can at least achieve its mid-term goal of 2,000 homes by the end of the 2022 trading year and get back to 30% gross margins by 2023.

The German bank did note that as MJ's peers had already reported, cost inflation in recent months, particularly in specific raw materials such as timber, steel and plastics, had been increasing, with Gleeson not being immune by any means.

However, given the strong price increases and well-organised supply chains, Berenebrg stated this was not yet a problem for the group and stood by its 'buy' rating on the stock.

"To put some numbers on this, materials are c12-15% of ASP, meaning even a flat 10% increase across all materials would reduce margins by c120-150bp, which we think Gleeson could easily offset via price increases. It also builds more slowly (c25 units pa per site), giving more time to ensure materials and labour are available," said the analysts.