Mears Group

Social housing specialist Mears Group has clinched a chunky seven-year contract with the London Borough of Lambeth.

The deal is fully listed Mears’ first with the South London borough and covers repairs, refurbishment, estate management and maintenance. The ‘partnership contract’ can be extended for a further three years, subject to performance, in which case the company would receive £170m revenues over 10 years. 

Chairman Bob Holt says the Lambeth award, following a recent £200m deal with Brighton, is another example of the larger contracts Mears is now winning. He argues increasingly cash-conscious local authorities and other clients are ‘looking for value for money, not necessarily the cheapest quote'.

‘They want long-term relationships’, maintains Holt, adding ‘we see ourselves winning more deals like this'. That would augur well for the company, which increased pre-tax profits by 19% last year to £18.4m, on turnover up 12.3% to £470m, and is also a leading player in the domiciliary care market.

Bulls see Mears increasing pre-tax profits 60% to £29.5m this year, for earnings of 24.5p a share, with the board likely to increase the dividend from 5.7p to 6.5p a share. By 2011, profits might approach £34m, on £629m turnover.

At current levels then, the shares, consistent dividend payers and strongly backed by Growth Company Investor at 274.75p, are trading on a prospective multiple of 12.2, an undemanding rating given Mears’ track record and high levels of revenue visibility, stemming from an order book of £2bn. Keep buying.