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Hi strictlybricks/Vlad
Came across the following article this morning – it is a bit dated (Dec 2019) but wondered if you had seen it and what your thoughts on it are?
https://www.ukvalueinvestor.com/2019/12/invest-in-uk-housebuilders.html/
My take:
- Crunches the numbers and reports BWY financial results as ‘astonishingly good’
- Seems to argue that the housing cycle is largely responsible for the amazing results (9% due to BWY, 14% from cycle)
- Discusses impact of HTB on housebuilders and potential impact should (when?) this ends
- Article concludes with a suggested purchase price for BWY at 2200p or less – interestingly the last comment on the article (dated 31-Oct 2020) highlights that this happened only to then re-evaluate to 1500p (admittedly a back-of-the-fag-packet guess) !!
As I say, article is just over a year old but what are your views on this, in particular the points on housing cycle and government intervention (HTB).
Cheers
MontyPy
That’s a nice article ??
I personally think that H2B will be extended certainly until 2025 for the next election. Interest rates will be low and consumers have a 100bn savings buffer ready to spend so builders will have a tailwind for certainly the next couple of years probably allowing SP to get up to £40-50 a pop.
Monty, I just read through (not thoroughly, but enough to get the gist of it) that article you put a link up for...
I think the writer has bamboozled himself with the mountain of numbers he's used, whereas he simply hasn't gone back far enough on the rights ones...
The short and simple reality check is that Bellway has returned an average 16% ROE since 1983 (so the author's notion of 9% is about 77% out...!) and a reasonable average selling price is around 1.5 PBV.
That the PBV, moves around a lot is just the nature of the investing-in house-builder-shares game, and it's not likely to change, so, yes, it ain't for the faint-hearted perhaps...?
But Vlad and I are certainly aren't complaining, are we..?
Strictly
Hi strictlybricks
I have now re-read the article a couple of times since posting the link. It all starts very positive with numbers that seem to agree with your position. Around the middle it seems (IMHO) to try and be looking for reasons not to buy? Some of the points he discusses I think are valid eg. house price to earnings (always been a big concern for me), double the number of homes sold at double the price (can this increase continue) and the HTB scheme (like johnc below, I think this will continue, for a while at least). Almost as if he places more emphasis/weight to these subjective issues than the hard-nosed numbers? I guess what tipped it for me was after presenting the analysis and determining a buy-in price, not following through . . . but may be that is a bit harsh as it was 10 months later?!
So, this morning over a cup of coffee I have punched some numbers into Excel to see if I have understood this reality ROE. This is what I have for BWY (only done last two years to see if I am on the right track) – hope the formatting makes it readable:
31 July 2020 31 July 2019
A - Balance Sheet Equity 2994 2921.2
B - Intangibles 0 0
C - TOTAL EQUITY (A-B) 2994 2921.2
D - Voting Rights/Shares 123.345 123.168
E – BVPS (C/D) 2427.34 2371.72
F - Dividends 100 145.4
G - Previous BVPS 2372 2083
H - EPS (E+F-G) 155.34 434.12
I – ROE (H/G) 6.55% 20.84%
And for comparison, looked at RDW
28 June 2020 29 June 2019
Balance Sheet Equity 1626 1585
Intangibles 2 2
TOTAL EQUITY 1624 1583
Voting Rights/Shares 352 352.19
BVPS 461.36 449.47
Dividends 20.5 29
Previous BVPS 449.47 401.4
EPS 32.39 77.07
ROE 7.21% 19.20%
So, how did I do? Guessing that the ‘function’ for the calculations are Ok (C, E, H & I), did I get the correct input values (A, B, D, F & G).
Cheers
MontyPy
Monty, I feel like I'm marking your homework...! :-)
Bellway looks fine except I've got BVPS 2018 being £2,557.1m/122.98m share = 2,079p, which gives a slightly better 2019 ROE.
Redrow 2019 is tricky, as that year they had this B share wheeze, which lost them a brownie point with me as they'd previously declared reluctance to pay more than a minimum dividend seeing as it is a destroyer of share holder value once the price is above book (that's my way of putting it, BTW, not theirs) and then they go and bamboozle their investors with this smoke and mirrors B share event that, while it looked great at first glance, you ended up a share short for every 21 shares you'd previously had so it was easy to lose sight of how much exactly each share had made.
At least, for a duffer like me, it was...
I won't get into it here, but I ended up after two attempts, back at the time, with an effective div paid in the year of 39.07p, an EPS for 2019 of 87.07p and an ROE of 21.5%.
So you might want to look at the Bellway 2018 BVPS, but it could be that I got that wrong, and it seems to me as though you've pretty much cracked this...
Therefore, no detention...!
If all you were given to work from were a balance sheet every year, the details of the dividend per share paid in the year, and the number of shares in issue at each balance sheet date then, providing you've got that information going back far enough (and for Bellway I've got it since 1983), then as Rod Stewart sang, "That's all you need" - everything else is pretty much there to impress or bamboozle you and to encourage you to put the numbers in the "too hard" drawer (as my son-in-law in New Zealand would say) and leave it to the so-called experts (and may the good Lord protect us from them..!).
I wouldn't mind betting (except that I don't bet) that Redrow themselves may not have thought all the implications of that B share through.... it was, IMO, primarily intended as a tax efficient alternative to the "me too" big divs the other builders were doing....
But those were started by King Jeff, at Persimmon, who, in turn, probably got the idea from Tony Pidgeley (now dec'd) of Berkeley Homes who was part way through pulling the same stunt some years earlier when he got headed off at the pass by the credit crunch...
But King Jeff clearly knew what he was doing - he got a nine figure bonus, signed off by the major shareholders, like turkeys voting for Christmas...
Not sure what the motive was for the other companies in such a fecund period of the property cycle, but there you go - I just wrote about that in the comments under this Telegraph investing article if you want to consider it further...
https://www.telegraph.co.uk/investing/shares/questor-forget-gamestop-hype-stick-knitting-likes-crest-nicholson/
I'm getting into a bit of a rant there, and I've nearly run out of character space, so I'll leave it with you - but feel welcome to come back at me about it...
Strictly
Hi Strictlybricks
Thanks for the feedback . . . regarding BWY 2018 BVPS, as I didn’t calculate it I simply used the ‘NAV per Share’ value on the BWY fundamentals page (2082.68p). This would explain the difference! So no detention, good, but continued lockdown :-(
I think I recall you saying in a previous post that you then guesstimate/predict/extrapolate the BVPS going forward – can you outline this (ie. what figures do you require and where are these found) and do you do this on a monthly basis? Is this to maintain an ongoing PBV (albeit predicted)??
I have setup a temporary email – montypy2006 at gmail dot com – if you preferred to respond there? Was also wondering if you are still accepting people to your investing blog??
Cheers
MontyPy
Monty,
I just sent you an invite for the blog, so if you received that you can reply to me directly and if you didn't just let me know on here....
Strictly
Strictly
I've been following your posts for a while with great interest. I see you have a private blog, would you be open to giving access to further my and my son's learning? If you are here is a temporary email address - babyduckquack123 at gmail dot com
Many thanks
Babyduck