The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
London South East prides itself on its community spirit, and in order to keep the chat section problem free, we ask all members to follow these simple rules. In these rules, we refer to ourselves as "we", "us", "our". The user of the website is referred to as "you" and "your".
By posting on our share chat boards you are agreeing to the following:
The IP address of all posts is recorded to aid in enforcing these conditions. As a user you agree to any information you have entered being stored in a database. You agree that we have the right to remove, edit, move or close any topic or board at any time should we see fit. You agree that we have the right to remove any post without notice. You agree that we have the right to suspend your account without notice.
Please note some users may not behave properly and may post content that is misleading, untrue or offensive.
It is not possible for us to fully monitor all content all of the time but where we have actually received notice of any content that is potentially misleading, untrue, offensive, unlawful, infringes third party rights or is potentially in breach of these terms and conditions, then we will review such content, decide whether to remove it from this website and act accordingly.
Premium Members are members that have a premium subscription with London South East. You can subscribe here.
London South East does not endorse such members, and posts should not be construed as advice and represent the opinions of the authors, not those of London South East Ltd, or its affiliates.
Molrey,
When you've spent more than twenty years boiling down this investment malarkey to just four or five companies whose shares you're interested in owning ~ and only then during the periods when they've hit perceived best value within that very small group ~ it's probably inevitable to end up with numerous ways of "slicing the cake to see if you can spot a maggot".
At least, that's been the case for me and this game has certainly brought forth my inner anorak over the years...
And what you've offered there is another way to ponder the questions "Is it best value?" and also (and especially now) "Is it safe?".
So, thanks for that....
And that's another indicator that Bellway has the best balance sheet in the sector... and, on the whole, generally that's always been the case.... but, being Bellway, they seem to largely just slip by unnoticed....
Strictly
There are lots of ways to look at Bellway's valuation but two simple examples I think that show the extreme undervaluation relative to assets - 1) If Bellway hadn't purchased any land in FY 21-22 (£1.3B) or FY 20-21 (£1.07B) and instead kept it all in cash, they would now have enough cash (when added to net cash of £245m gives £2.6B) to buy back all their shares in the market. 2) They paid £68k per plot in the last year which if applied to the rest of their landbank would give a value of £5-6B or so. Current Market Cap £2.6B.
Seamus,
If you click on my name here and scroll back through my old stuff going back years now, I've banged on ad nauseam about all this in the past....
We ~ that is, myself and at least some of the SB crew ~ have been in this game more than twenty years now and, so far, it's stood the test of time as I'm very happy with the long term returns....
But, to do this, you will necessarily need to do some detailed number crunching, and then keep updating the number crunching, and also while paying close attention to the value shifts...
But it seems you may just have grasped a core paradigm shift in all this, that I bang on about to my lot but still, after many years, plenty of them still don't truly "get" it.
I mean, letting go of house builder shares as against cash, and fully embracing house builder shares as against other house builder shares...
That’s it…
It sounds so simple, doesn't it..?
But I've witness virtual epiphanies, on occasion, when the penny has finally, & usually suddenly, dropped for someone....
So, IMO, it really is worth the effort to make sure you get there... :-)
Strictly
The concept of bouncing between Bellway/Redrow is really interesting and something I had never considered as I tend to be a buy and hold type investor.
Thanks for that insight as I had never thought about such an approach.
Learning all the time, thanks Strictly.
I think you are quite correct in your opinion that both BWY & RDW could be targeted, RDW in particular as its shares are now trading on a sizeable discount to its total net asset value.
Perhaps RDW will bid for BWY that would be interesting for your SB Crew strategy.
Gary,
Yes, I am sure you are right that this would push the price up a bit....
But here's the thought to conjure with...
Our (and by "our" I mean the Strictly Bricks crew ~ I've just also appropriated our blog name for my nom-de-plume here, but there's actually rather a lot of us in this investing-only-in-house-builder-shares malarkey) strategy is to remain fully invested, come rain or shine, and to only invest in, and trade between, house builder shares.
Currently, that is between Bellway and Redrow, nothing else comes close right now in our assessment of value (each to his own on that front, though… obviously…).
So, of itself, it doesn't really matter what price I bought Bellway at relative to a takeover price, because that would be all about a relationship between Bellway and cash.
Whereas, what DOES matter, and what I'm entirely interested in, is the relationship between Bellway and Redrow, and their relative perceived value at any time, and the currency we have to evaluate between them is weighted book value.
So, the likelihood of outcome of a bid for Bellway, I would say, would be that all builder shares would go up in price to some degree but that Bellway’s price would rise more ~ and that in turn would likely provide for a round trip gain on buying back Redrow shares from the proceeds of selling Bellway (having previously sold Redrow shares to buy Bellway, and so on…).
In other words, I would anticipate ending up with more Redrow shares than I’d held at the start of that particular “round trip”.
………………………..
But the real b'stard of the piece would be losing Bellway as a player....
That would be a VERY big deal for me and the SB crew...
I can't speak for the others, but I would probably weep for the loss...!
Strictly
Going back a bit now, but can anyone explain Jason Honeyman's partial reversal on his sell late last year:
22/10/2021 Sell 4364 @£31.82
29/11/2021 Buy 3373 @£31.61
Tax reasons?
Many thanks Strictly, wise words indeed.
You’ve mentioned being taken over a few times whilst I’ve been reading & whilst this would be a bum**r if it did happen would it not push the SP up considerably? Not good for those that have brought much I higher from where it is now I suppose.
Gary,
I have absolutely no view on where prices may go in the short term...?
Or any other term, really….
A couple of things to consider which may help, though....
Unless you think Bellway, etc., are going to suffer some real damage as a company themselves from whatever is currently coming down the pike at us, they are seriously cheap on any historical basis....
Their average PBV tends to be around 1.4 or so (it would no doubt be higher, but they are like Ghost Dog, after all ~ I mean, they slip by without people noticing and that seems to include most investors...)
And their long term average ROE is around 16%, yet they are projected to come in just above that for this year... so why a current PBV of just over half their average ~ a lot of fear built into that, I reckon...?
And the other thing is that my strategy has always been to remain fully invested throughout, despite that I did largely swerve the covid tsunami ~ I see that as a lucky one-off and that my lot in life is that I am unable to divine what may happen and so I necessarily just have to brass it out when it comes to the vicissitudes of the market.
And I no longer add new money to investments (I’m all in anyway), I only pull dividends now, plus any gains from round trip trades, so that makes me pretty financially neutral in terms of needing share prices to be high or to be low....
On behalf of others in my investing circle who are in large part the next generation down from me (or even two generations down) saving for pensions in SIPPs, I'd like to see prices remain stupidly low so they all get more ongoing bang for their buck with reinvested dividends and any new money in...
If they too reach the point when, on retirement, they only need to draw dividends then they too don't have to give a f.ck what the price is doing either...!
My concern, though, remains a fear of these companies being taken over through being too cheap.
Beyond that, I would suggest to you not to commit time & energy trying to predict what the share price will be tomorrow, next week, next month or in two years' time....
Unless, of course, you're lucky enough to be drinking pals with the Captain (Hindsight).
Strictly
You can be ageist... I don't mind... I readily acknowledge that I'm an old git these days... :-)
Strictly - Not sure if it is appropriate to ask this but I will in any case.
How do you see house builder share prices in general panning out this winter? I know there are many things to consider but for us newbies looking to buy our first tranche I would like to know what a seasoned or should I say experienced investor (excuse the ageist reference) thinks.
My own thinking is that one should buy in stages as the price dips. Are you guys still buying or will you be buying at these current levels?
Deadly,
Yes, I am sure that the Wilson Bowden brand does have value....
But if we're trying to assess relative value then we need to make sure we're comparing apples with apples.
So, taking it that other house builders obviously also have brand value & recognition (for better, or for worse in some cases, perhaps…?), because the brands have grown with the companies themselves rather than having been purchased and so requiring a balancing figure on the balance sheet in the shape of goodwill & intangibles, they don't appear on the balance sheet at all...
So, in order to truly compare like with like, that item has to be taken off Barratt's balance sheet for comparison.
Moving on, as you have different figures for liabilities, I thought I'd better go back and check in case of any senior moments on my part ~ a frequent occurrence at my age ~ and there was one, so mea culpa for that.
Bellway, latest half time whistle, £1,190.8m total liabilities divided by £3,429.8m net tangible equity = 35% not 32%.
Don't know what happened there...?
Barratt, £1,956.3m total liabilities, also as at latest half time whistle, dividend by £4,683.8m net tangible equity (being £5,589.7m less intangibles £905.9m) = 42%.
so, the gap between them on that metric is smaller than I'd suggested ~ my apologies ~ but still no cigar for Barratt..... :-)
And, finally, to put a number on the value gap between the two companies for me, I have a negative book value weighting in for Barratt (against Bellway, ~ all other houses are rated against Bellway being that it is my benchmark share) of 10%.
With this weighting, Barratt's PBV of 1.02 (and I only calculate a BVPS for Barratt every six months, not every month as for Bellway, because it is not currently in the frame for me) increases to a weighted PBV of 1.13 as compared to Bellway's 0.74.
Which makes for a huge perceived value gap of 52% in my world.
So, barring some b'stard taking Bellway & Redrow private, there's quite a relative price movement required for me before Barratt moves up to a monthly BVPS assessment, let alone becomes a consideration for a trade.
But I have owned Barratt shares in the past, and I do anticipate owning them again at some point in the future…
Rust never sleeps, and all that…!
Strictly
Strictly,
Yeah my back of the envelope calculation is 30% liabilities for BDEV and 22% for BWY, obvious BWY wins that, but I wouldn't completely write off the Wilson Bowden Goodwill asset, surely the brand still has some value?
Yes I am just looking to buy and hold, so a bit different to your game :)
Deadly
Isn't this just the most constructive, informative board on LSE with polite knowledgable posters?
Thanks guys & girls keep it coming, onwards & upwards.
And Deadly, hedge your bets mate buy both BWY AND BDEV.
Deadly,
Good that you come to your own view on this.... if Bellway and Redrow were taken out of the game by private equity or whatever (a lingering concern of mine!) then it would likely be Crest, Barratt & Taylor Wimps in the frame for me instead.
One thing I omitted from yesterday's missive, which you may or may not regard as being pertinent, is that I look at overall balance sheet liabilities rather than just cash or bank borrowings and, on this basis, Bellway has the stronger balance sheet with just 32% total liabilities against net assets.
Whereas, once you've adjusted Barratt's balance sheet for the £900 million of mythical assets which are the legacy of their purchase of Wilson Bowden ~ Barratt being in denial, if you like, by not just simply writing it off ~ Barratt's equivalent percentage balance sheet liability is 42%
It sounds like you're looking to buy & hold ~ which is obviously a different game to mine...?
I wish you the best in your investment progress though… :-)
Strictly
Hey Strictly,
Thanks for those thoughts on the difference between BDEV and BWY. I can see where you are coming from, BWY does have a much better track record than BDEV, especially re 2008, which is especially pertinent given today's housing market. I also agree that BWY P/B is more attractive than BDEV, but I also like how much cash BDEV has currently.
I know that BDEV has almost £400 Million of liabilities due to the cladding scandal, and BWY exposure to it is far less at £200 Million or less. However, I am going to buy BDEV as I think it's going to provide a larger growth opportunity in the future. I understand that in the past it was completing over 20,000 homes a year and was Britain's largest builder for a long time. I think PSN has some issues currently and see BDEV taking advantage of the growing demand for housing and growing house building up to 20k again.
Now BWY may provide better % returns, but for me I think BDEV is a better risk/reward current play, alas I am a novice in this sector, so am doomed to be wrong, but I'll take the dividend!
Deadly
Deadly,
PART 3
PS. Hope all that's of some use..? :-)
Strictly
Deadly,
PART 2
And, coming more up to date, Barratt's five year average ROE, pre covid, is 19% compared to 23% for Bellway.
So, IMO, pound for pound, a unit of asset in Bellway is most certainly worth more to me than a parallel unit of asset in Barratt.
To me, that's a no-brainer.
The degree of difference... ah, well, that's the hard part...!
Once I have come up with a view on that I apply a book value weighting.
And taking all the above into account, clearly, for me, Barratt would need to be selling at a somewhat lower PBV than Bellway to be worth considering.
However, right now, it’s on a PBV or about 1.0 compared to Bellway on 0.75.
So, for me, there’s no contest ~ but, of course, please DYOR as I’m not doing advice here just giving you an outline of our game, which has worked for me for more than two decades now….
Strictly
Deadly,
PART 1
A few things to think about, perhaps...?
Firstly, though, if you've scrolled back through some of my comments here you'll probably have soon come to the conclusion that I'm pretty anal when it comes to investing in house builders shares ~ in any case, the name surely gives it away..?
My moniker here is actually the name of a private website/blog I share in large part with my circle of family and friends & which underscores a whole investing philosophy ~ practiced by most of us in that circle ~ of seeking best perceived value in house builder shares at any time and being prepared to shift holdings for incremental gains.
So a couple of things to consider here...
Firstly, can you be a.sed to do the legwork, and to keep it current, to reasonably assess best value, and secondly, can you be a.sed, to pay attention sufficiently to be ready to trade on the modest gaps as & when they arise...?
To put some shape on this, I reckon our game has historically added an additional 6% a year on average to the gains made by Bellway, our benchmark share and affectionately known as "Ghost Dog" within our circle (you'd need to have seen the film to know what the bl..dy hell I'm on about there).
6% a year may not sound much, but it would mean doubling every 12 years against buy & hold or, over a more reasonable investing career of 36 years, increasing eightfold over buy & hold.
Winning the lottery in slow motion, if you like...?
But Bellway is our benchmark share for a reason, and this no doubt is what you want to know about.
Bellway has paid a dividend every year for forty years.... without fail… even though they've been through two periods in that time (we're currently in the second of those) in which they've had to scale back the payment to then recover later.
They've never engaged in any "shareholder capital return plans", unlike others, and which IMO are just bo..ocks to snare investors who love the big payouts but at the price of not focusing on the damage to growth & long term shareholder value (this is clearly a rather controversial viewpoint on PSN chat here, but there you go).
Bellway have made a long term average return on equity of around 16%.
By sharp contrast, Barratt have got things badly wrong twice over that time, and potentially existentially so leading up to the credit crunch with a new, relatively inexperienced MD at helm who largely destroyed Barratt's balance sheet through buying Wilson Bowden utilising huge borrowings in about 2006 and they still haven't properly recovered from the eye-watering rights issue required to save the company from going belly up.
Strictly
Deadly, it seems that we are both researching these companies with a view to purchasing is I'd be grateful for yours & others thoughts. FWIW I intend to start with £20K in 3 or 4 companies & am favouring BWY, PSN, BDEV & or RDW, my interest in mainly in dividends to supplement pensions.
I think that house builders possibly have another 10% to decline over the winter from where they are now, some on the PSN board are being much more pessimistic than that. Good luck all.
Hi Strictly,
I am also a newbie to Housebuilders, although not to stock picking, am thinking of buying BDEV over BWY as I think their balance sheet seems a lot better than BWY's. Any bad things about BDEV you know? Or you just prefer BWY management? Thanks
‘Building on the proactive approach to land investment in the prior year, the Group has contracted to acquire 19,089 plots(5) during 2022 (2021 - 19,819 plots, 2020 - 12,124 plots) across 107 sites(5) (2021 - 109 sites, 2020 - 69 sites).’
HB’s such as Taylor Wimpey looks better re land bank value because they bought more in 2020?
Thanks Strictly your own posts were actually recommended to me by another kind poster & my knowledge of this sector has undoubtedly improved this week as a result of my reading & your posts. I admire your courage being almost solely invested here, it obviously works for you & long may that continue.
Personally, I see a more advantageous buy in point coming in the future, as we all know judging that point is a bit of a lottery. So, I'll keep reading for the present & thanks again everyone.
"I am looking to invest in house builder(s) for the long term & am respectfully looking for recommendations from those with more knowledge of this sector than myself."
...........................
Gary,
I'm not confident that you'll get any direct recommendations for investments here ~ probably a step too far anyone to give direct investingbadvice ~ but a bit of time spent scrolling back on, in particular, Bellway's share chat along with clicking on the names of any commenters you think add something to the debate (and there are a few of those here, IMO) should give you some food for thought....
As the name implies, I only invest in this sector and, for me and our investing circle, Bellway is our benchmark share...
Not for nothing is it referred to as "Ghost Dog" (you'd have to know the film, though, to make sense of that).
Strictly
Posters, please be gentle & thanks in advance for indulging me.
I am looking to invest in house builder(s) for the long term & am respectfully looking for recommendations from those with more knowledge of this sector than myself. I shall of course be doing my own research but forums such as these are a mine field of brilliant knowledge, hence this request. Dividends are my priority rather than growth.
I am considering one or all of 'Bellway, PSN, Barratt & or Redrow' on first glance the latter currently looking more undervalued than most.
I have also looked at Berkeley who seem too expensive for me currently & their dividends are a bit low.
Thanks in anticipation.
That just me being a bit thick. I'm still not used to how this board lays our the message threads. Ignore me!