Social housing maintenance group Lakehouse (LAKE:AIM) is a classic turnaround story, according to Stockdale analyst Alastair Stewart.

He believes demand for group’s services should be driven by a growing focus on health and safety compliance, together with the Government’s renewed commitment to social housing.

Its core divisions of compliance, energy solutions and construction are profitable; but it is still trying to revive its loss-making property services arm.

TARNISHED REPUTATION AMONG INVESTORS

The company has not had an easy ride since joining the stock market at 89p in March 2015. Its share price is less than half that level now at 41.25p following a series of profit warnings and boardroom battles.

Bringing in a seasoned pro like Bob Holt as executive chairman bodes well for Lakehouse. He is best known as chairman for another social housing services provider, Mears (MER).

Holt is heavily incentivised to get Lakehouse’s share price back up towards 90p. ‘If, by the end of January 2019, the shares reach between 58.6p and 98.4p (less any accumulated dividends from 1 October 2016) he stands to be awarded up to £4.3m,’ says Stewart at Stockdale.

The analyst believes greater prospects for compliance-related work should help to offset issues within its property services arm which has been dragged down by legacy contract problems.

Its energy division may well benefit from the Scottish Parliament’s commitment to cut carbon emissions and reduce fuel poverty. Furthermore, it was recently awarded extra work for Scottish Power to install smart meters across Scotland, Wales and England.

WHAT’S THE EARNINGS OUTLOOK?

Peel Hunt Andrew Nussey forecasts 4.2p earnings per share for the financial year ending 30 September 2017, rising to 5.9p in 2018 and 7.1p in 2019.

He also forecasts steady growth in the dividend, moving from 2p in 2017 to 2.5p in 2018 and 3p in 2019. Against the current 41.25p share price, Nussey’s forecasts imply a dividend yield of 4.8% this year, moving to 6.1% next year and 7.3% in the year after.

The Peel Hunt analyst reckons the shares could rise to 50p over the next year. Stockdale’s Stewart is more bullish as he has a 75p price target, implying 82% potential upside.

That’s despite Stewart now expecting the property services arm to lose money in both 2017 and 2018 versus previous forecasts of a small positive contribution to earnings.

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