MJ Gleeson signals margin pressure as costs rise and price growth remains weak

MJ Gleeson has maintained full-year guidance despite weak margin pressure from higher costs and limited house price growth.

The housebuilder has been buoyed by monetary easing, with the Bank of England cutting rates by a further 25 basis points to 4.75 percent last week, amid continued easing of inflationary pressures.

MJ Gleeson told shareholders the rate cut should boost buyer confidence during the key spring selling season, easing weakness in the UK housing market.

According to consensus forecasts, analysts expect the Sheffield-based construction company to build 1,862 homes and make £28 million in pre-tax profits in the 2025 financial year.

From July to early November, MJ Gleeson reported that the weekly net booking rate increased to 0.56 per site, compared to 0.47 in the same period last year.

However, the group noted that the residential segment continued to see margin pressure, partly due to multi-unit sales, higher construction costs and greater sales incentives.

MJ Gleeson also flagged ‘limited relief from rising retail prices’.

The company expects to sell in a smaller number of locations on average than the previous year, even as it expects to open many more retail locations: 27 compared to just four in fiscal 2024.

But the company said proposed changes the UK government could make to planning reforms “should have a beneficial impact on the timing of certain locations”.

The new Labor government has pledged to build 1.5 million new homes over five years, partly by hiring more planning officers and developing on lower quality land in the gray belt.

According to recent figures from the Office for National Statistics, just 183,610 new homes were built across Britain in the 12 months to March 2024, down 13 per cent on the year before.

MJ Gleeson, founded in 1903, completed 1,772 new houses in the year ending June, just 49 more than in the previous twelve months.

Higher underlying sales prices saw total sales rise 5.2 percent to £345.3 million, but costs at several old sites led to the company’s pre-tax profit falling 21.3 percent to £24.8 million.

MJ Gleeson shares were steady at 556p on Friday morning and are up around 18 per cent in the past year.