Highlights

  • RBC slashes FY25–FY27 operating profit estimates by up to 17% after trading update
  • Profit hit by flat pricing, rising build costs, and failed land sale in East Yorkshire
  • Planning delays seen dragging volumes; FY26 site sales now expected to decline

RBC Capital Markets downgraded MJ Gleeson Plc (LSE: GLE) on Wednesday following an unexpected trading update that revealed lowered profit expectations for the fiscal years ending June 2025 and 2026. The bank downgraded its rating from ‘sector perform’ to ‘underperform’, cutting its price target by 35% from 650p to 425p.

The housebuilder warned that its gross margins have come under sustained pressure due to flat average selling prices, elevated build costs, and the continued reliance on buyer incentives. Gleeson had counted on a land sale in East Yorkshire to help offset the margin shortfall, but the deal collapsed, deepening the projected profit decline.

In its revised forecast, RBC reduced operating profit estimates by 17%, 15%, and 16% for FY25E, FY26E, and FY27E respectively. The cuts reflect both lower gross margins and reduced volumes, with site sales now expected to dip from FY26 onward due to planning-related disruptions.

The report also noted that changes introduced by the Labour Government to the UK planning system have yet to translate into improved project timelines. RBC stated that local authorities have been slow to implement new planning rules, compounding the pressure on Gleeson’s pipeline.

RBC raised concerns about the company’s shift towards bulk sales to institutional buyers to offset volume shortfalls. The note cautioned that such buyers often command steep discounts, potentially diluting margins further.

Gleeson hinted at upcoming operational changes aimed at improving performance but has yet to detail the scope or timeline of these adjustments. RBC concluded that the latest update signals continuing structural challenges, rather than a one-off reset.