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If you look at the estimated book value per share for Barratt & Redrow as it is now, but allowing for what I’ve calculated to be around a 2% fall in book value for Barratt share holders and a 4% increase for Redrow shareholders when the deal goes through ~ or 5% if you include the Redrow div to be paid be paid before the takeover/merger, by my reckoning I get 447.1p for Barratt and 648.8p for Redrow as of this month.
Bring in share prices ~ currently 475.5p for Barratt and 667p for Redrow ~ and this gives respective PBVs of 1.064 for Barratt and 1.028 for Redrow.
This means there’s only about 3.5% between them ~ whereas a fortnight ago it would have been a full fat 15% gap between them on the same respective share prices.
The managements of both companies seem very confident that the deal will go through…
If it does, then, providing I haven’t had a senior moment with the numbers (always possible ~ I do have one or two of these from time to time), surely there isn’t much further to go now for more price movement to equalise between the two and maybe the residual bit still outstanding is a reflection that it’s not over until the fat lady sings, so to speak.
A separate point is that, although Barratt have for along time been synonymous with “little boxes” the reality has well moved on ~ they have the longest running uninterrupted period among the big house builders for a five stars customer rating from the House Builders Federation.
Their most recent five year average ROE is good at 13.0%, albeit a bit behind Redrow’s at 13.8%.
Against that, they are a FTSE100 company which probably gives them some sort of bonus to the share price against their FTSE250 country cousin, Redrow.
So anyway, folks, I’m just sharing a few crumbs for thought… make of them what you will….? 😊
Strictly
I’ve supplied large builders for years with product. Barratt have only recently recovered from
that idiot Mark Clare buying Wilson Bowden. Redrow all I see is large developments not selling and not in great locations. All talk of come the Summer and interest rate cuts, it’s all a gamble
. Is there a good mass market with high interest rates, seeing as the business only did well with
zero rates and help to buy.
Steven Boyes grandstanding and lost the direction of the business. Started as a surveyor up
North lined his pockets with large share awards, he not the sharpest pencil, neither are the
rest of the board. Cash flow will also surely be impaired.
Why are Redrow selling, probably because they see a stagnant market for a few years and
having cash flow issues as a result.
The only business is the HA and the reduced margin partnership deals.
It’s all a large gamble, hopefully the competition competition will give the deal a good kicking
and not allow it, why would they allow it, what’s the benefit to the public, there isn’t one.
Something to think about
"It’s all a large gamble, hopefully the competition competition will give the deal a good kicking
and not allow it, why would they allow it, what’s the benefit to the public, there isn’t one. "
.............................
Finlay,
I for one hope you are correct in this…?
The Game of Strictly Bricks ~ from which I take my moniker here ~ is currently played in its purest form between just two companies, which are Bellway and Redrow….
Take away Redrow and, until an alternative manifests, Bellway has morphed into Billy No-Mates…! ☹
And the boards of both companies seem confident the deal will happen…
In its defence, Barratt has been a much better, and more soundly financed, company in recent times than it was during the era of Mark Clare, though its financial performance is still below that of Redrow over the past fifteen years or so…
The two stars of the sector over forty years are Bellway and Persimmon ~ though Persimmon have spaffed more book value via big dividends….
Which is why, in our investing circle, Bellway has the affectionate nickname of “Ghost Dog”
But you’d probably have had to have seen the film to understand that…?
Anyway, I thought you made some good & interesting points…
And I guess we have to wait and see how this all pans out ~ though I’m doing so from the position of being fully invested (in Bellway, currently, that is) rather than looking in at the house building sector from the outside with a bucketful of popcorn by my side…
Strictly
Strictly,
There is a saying and it’s “Don’t over Trade”, basically don’t take on to much work. So, basically
Barratt are going to expand their operation in a high interest rate environment, with no volume
guaranteed sales, other than the lower margin HA and partnership deals.
Interest rates will not revisit historic lows so the proposed strategy is therefore risky, and
grandstanding by the board, who are not that sharp.
Also, having supplied product to a vast number of construction companies over the years
the worse by far to work for is Persimmon. Their quality is absolutely shocking, they got
away for years on nailing down stubbies,but as you have probably seen build costs have
been up over the last couple of years.
“Also, having supplied product to a vast number of construction companies over the years
the worse by far to work for is Persimmon. Their quality is absolutely shocking…”
…………………
Finlay,
It’s interesting to hear your perspective from your having been involved in the industry, whereas I am purely looking in from the outside, so to speak, as an investor ~ though I have been at this for almost twenty four years, the last twenty of which have been solely in house builder shares and throughout that time it’s provided me with a more than ample living, albeit a bumpy one going through the credit crunch remaining fully invested….
I have an aphorism that the numbers are the cold marble slab of truth when it comes to this, and it’s easy to imagine that you are right regarding Persimmon simply by studying their balance sheets year after year, with the additional element that King Jeff there was so crafty in getting through his humungous bonus scheme on the back of the whole shareholder cash return scheme that came about after the credit crunch…
This hadn’t been an original thought of Persimmon’s… Tony Pidgley of Berkeley Homes first came up with this wheeze a few years before ~ but the scheme was bushwacked by the same credit crunch… just like Syd Barrett (the musician, I mean, not the builder..! 😊 ), he reached for the secret too soon…
But Persimmon’s corner cutting & greed did show up in the numbers ~ the superior margins, the crazily high dividend payout ratios to impress investors and drive the share price up even though the minimal retained earnings inhibited growth compared to other successful house builders ~ and it was all there to see if you were looking for it…
And it also showed up in their p.ss poor HBF ratings as they were on just three stars until 2019 ~ but post-Jeff getting to five stars in 2022.
So there’s something you may well have more knowledge on here than me as you have been directly involved…?
Under different management, Persimmon seem keen to put their recent rather shabby past behind them and so aspire to be much more customer-focused ~ or at least, that’s their story these days...
And the HBF five star rating would suggest that they are succeeding in that..?
But is the star rating scheme something that can be manipulated, massaged, etc., such that it’s not really that valid, or, if you happen to know, is it actually reasonably authentic and therefore a useful indicator…?
Because, as Warren Buffett would say, it takes many years to build a reputation but just ten minutes to lose it…
And Persimmon sure managed to do the latter in the public eye ~ and, unfortunately, to some degree, also on behalf of the wider house building sector.
I’d be interested to hear your view, Finlay…?
Strictly
Strictly,
Back in the day Berkeley made a shed load of money from the development of London, a
licence to print money. Now a days the volume housebuilders don’t want to develop
London, they earn more money just putting little noddy houses on the green belt.
That was a licence to print money with zero interest rates and the help to buy scheme. So, the
bet is now for shareholders and it is a bet, will the government step in again and introduce
incentives.
I’m not so sure, Hunt doesn’t seem to be talking up the tax incentives, so I’ve sold out of
Housebuilders. Retendering on jobs, and cost savings which are the norm for
subbies but then Boyes seems to have a bright idea, which I think is only being done to
increase his free share handout, and merge, but it’s a takeover.
I will revisit after the budget.
Finally, I’ve found Bellway good to work for.
"Finally, I’ve found Bellway good to work for."
.....................
Finlay,
Thanks ~ good to hear that, especially now that, since last Wednesday, I am 100% invested in Bellway from having been, just the day before, 100% invested in Redrow… 😊
In our investing circle, Bellway are our “benchmark” share….
And Jason Honeyman, Bellway MD: Bermondsey lad, tick; didn’t go to university, tick; been in the building game since leaving school at 16, tick….
I don’t suppose folk who’ve been to university will think much of that, but there you go…!
Anyway, Bellway have pretty much always got it right in their forty years of having a stock market listing…. they are alone amongst the quoted house builders, that I track at any rate, in doing so in my view…
Though I would probably express it differently, I share your seeming concern about future prospects.
Bellway have averaged a 16% return on equity over the past forty years ~ that really is quite something.
However, from here, I’m only budgeting for them to gradually return to a 10% return on equity, and also taking several years to get there…
The three hundred year record for the Bank of England is that interest rates are typically around 5% and they may have moved away from that through periods ~ above in the late ‘80’s and ‘90’s and below since the credit crunch, but I’m allowing that, for all the talk, they’re not likely to move that much from here…?
I hope I’m wrong, but it seems to me that high borrowing costs as a percentage of income, due to the ratio of earnings to house prices, are likely to impact on house builder profitability, as the market inevitably does its bit to force them to take their share of the pain….?
And, in the interim, barring house price falls, I would say ~ from the inside as an investor ~ we just have to be patient and wait for inflation do its thing to bring down the cost of houses in real terms and so, in turn, increase the ability of people to buy them…?
And that’s hardly an overnight job, is it..?
But that is what is now seems to have been happening over the past year or more…
It seems to me that the country has become poorer….?
We may not be heading down the plug hole as a nation just yet , but it’s hardly a time for complacency on that front ~ I would suggest that anyone who has come across Alexander Tytler’s “Eight Stages of Democracy” would have reason for being concerned.. ☹
And he died back in 1813, so that was written a while back…!
Anyway, enough of that ~ good to exchange perspectives here, I would say, and in a civilised manner (especially as, by contrast, the Persimmon share chat seems to have recently descended into something of a series of hissy fits, which is hardly constructive…)
Strictly
I did like your comment about the boy from Bermondsey. London, the east end
where I grew up from a working class background has produced some of the
best businessman by far.
All out of hard working class values, and not a graduate in site, those were the days.
“London, the east end, where I grew up from a working class background has produced some of the best businessmen by far. “
………………..
Finley,
Well, I’m from West London, I’m afraid, but now living on (not in) Dartmoor….
I had record wholesaling then video wholesaling companies, back in the day from the mid ‘70’s, sold out in the mid ‘80’s, left the capital with others to manage until 2000 when I took it over myself and ended up all in house builder shares for the past twenty years…
And Captain Hindsight has shown that to have been a good call… but, another twenty years on from here, who knows?
But I’m imagining I’ll be pushing up daisies by then anyway ~ cheerful b.stard that I am…? 😊
But, yes, I’ve read plenty of biographies about successful businessmen and, back then, pretty much all of them didn’t do well at school…
Not because they were thick ~ far from it ~ but largely because they couldn’t stand being told what to do…
Just like me…! 😊
Strictly
Hi Strictly,
I was watching a clip from Elon Musk on schooling and education, and I’ve tried to have
a conversation with some elites, his point basically is the whole principle of schooling
needs to be thrown out the window and started again.
Of course it won’t be, but it’s a common point from business that the kids coming out of
education are not fit for business. Why, is that, well it’s the great elites who run the shooting
match, and have no interest in what business is saying, and it’s needs.
A shame really, because the consequence particularly with the house building trade is
that all the house builders want to build is little noddy houses, which they have got
down to a semi skilled level of construction.
Tradesmen in there 50’s are leaving the industry in their masses, because it’s not the building
trade they all started in.
And, yes I know loads of self made people, who didn’t enjoy school purely because we just
all wanted to get out and start earning money and starting businesses. Even more opportunities today for hard working young people, and property is particularly appealing.
Interesting debate... I've always loved the phrase "standing on the shoulders of giants", meaning we don't have to discover everything from scratch but can learn from our predecessors and build on that knowledge. That can be applied to all avenues of life, but in schools it seems to be done very badly. We chuck random facts at children with no context of the history of why it is relevant. Take a subject like trigonometry... how often have we heard the phrase "when will I ever get to use this in real life?" Whose maths teacher ever explained that trigonometry provides a perfect model for working our the best place to convert a rugby ball from? We bore our children with facts without teaching them how to think, by showing them how these principles were discovered in the first place.
I'm of an age where I got a grant to go to university, but I quit after a year because it was a worse quality than I had experienced in school and 6th form. Now I find myself as an employer being presented with CVs of graduates who simply don't know how to think! They tout their qualifications, but have no practical experience of using any of this knowledge. Give me a 22 year old with four years of work under their belt over a 1st class honours graduate any day. And don't get me started on the levels of entitlement and salary expectations of these graduates!
If I had had children (I managed to escape that burden) I would definitely have encouraged them to learn a trade and only take on years of debt for university if they showed massive aptitude and desire to follow that path.
A plumber with integrity is worth 100 accountants in my book!
Trout. I hope you don’t mind. Your comments sparked so many similar thoughts.
I left school at 15 with no qualifications but pushed by my parents to find a job, any job, that could contribute to the family’s poor income by way of paying “board”. I joined the University of Life in the building trade of the 60s where health and safety, diversity and ESG would have been laughed off site by brickies, chippys and sparks. When arthritis kicked in as it inevitably does to tradesmen scrabbling around on the floor for years, I found myself in the Civil Service where 30 years in the building trade gave me a head start on the skivers, misfits, deviants, and the “instructors” who filled many a day a with “courses” designed to correct my thinking. I think a number of them were budding lefty politicians.
Just now I try to influence my two 18 year old 6th form grand kids to get a proper job in the real world and to be unswayed by thoughts of a partying debt-fuelled uni, the Mickey Mouse degrees and the brainwashing they will witness.
Fortunately, and influenced by their parents and grandparents, they both have part time jobs, one in a MacD, the other in a supermarket. They mix with people of other backgrounds and are learning about life in a far more rounded way than a University could. When they reached 18 they both received a sum of money with appropriate advice from Nana and Grandad, invested in their early years in amongst others, BDEV.
And now I am back in BDEV in a small way but looking to build my stake. GLA.