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That just me being a bit thick. I'm still not used to how this board lays our the message threads. Ignore me!
EP,
Correct re Vlad/Bogdan ~ we also have a line of communication outside of LSE and Telegraph share chats as we seem to be on such similar song sheets about this stuff...
However, while I recognise the name Atticus, I hadn't connected that with you...
I still don't understand your comment about having a conversation with myself, though ~ but perhaps I'm just being thick...?
Strictly/Gunga
Strictly - yes - I was replying to you. The prose and opinions seemed so familiar - not a criticism you understand. I guess LSE Vladamir is DT Bogdan. You may recognise me as Atticus from DT.
"Funny you say you have a DT discussion going with yourself. It's pretty obvious just from the prose who you are!"
..................................
EP, not sure whether that was directed at me or someone else...?
But, in the Telegraph comments, my moniker is Gunga Din.
Strictly
Funny you say you have a DT discussion going with yourself. It's pretty obvious just from the prose who you are!
MM,
Well, it hasn't bounced thus far, so check your inbox...
Strictly
strictlybricks,
I created a new one. I tested it too, it does appear to work OK for me:
magma.birdie0b@icloud.com
MM
MM
It failed again....
Perhaps either if you can come up with a different email address or, plan B, I could put out an APB on the blog for one of the other people from LSE share chat who've joined the SB blog via using a temportary email address to put one up here for you and so on to me...?
Let me know...
Strictly
Sorry about that. I haven't got the hang of these disposable email address quite yet. I think it's fixed, can you retry?
MM
MM,
I tried emailing you on the address given, but that bounced, so please confirm...?
Strictly
strictlybricks,
Yes, I would like that. It will give me a way to send you my 40y Bellway P:BV chart which I think you will find interesting and which shows what extraordinarily good value is Bellway today (not that you need to be convinced of this, but it is interesting and something I don't want to post on a public forum).
You can dm me here: goblet.rider0l@icloud.com
MM
PPS.
I thought I recognised the name....!
I see you also comment in the Telegraph investing section and currently have a chat going on with Dan Walon there....
In case you're interested (and it's the seeming long term perspective that you take that interests me, as it suggests there may be some common ground as I'm largely a rear view mirror, rather than windscreen, investor), I have separate investment-related discussion with Dan, Bogdan and others outside of public share chat forums like this and they are part of the eponymous blog (the Strictly Bricks blog, I mean..... so-named because I ONLY invest in house builder shares).
If that appeals, let me know on here....
Strictly
Tom,
PS. To back up my rudeness about Bovis/Vistry, their reality check average return on equity from 2013 to 2021 (by reality check, I mean working using BVPS movement, adjusted for dividends paid) is by my calculation 9.2% compared to Bellway's far superior 16.9%.
Considering that Bovis/Vistry's PBV is currently by my reckoning 48% higher than Bellway's ~ being 1.23 (this is not so accurate as for Bellway and Redrow, mind, as Bovis is far from being in the zone for me) against Bellway's 0.83 ~ I see that as the triumph of hope over experience.
From 2019 to 2020, Bovis' reality check BVPS fell from 840p to 659p by my calculation.
Nightmare...! :-)
Strictly
Tom,
Our nickname for Vistry, aka Bovis, is Battersea ~ as in dogs' home ~ which probably gives you a clue about the level of esteem with which it is held in our circle.... :-)
To try to answer your question as I understand it, it's about always pursuing best perceived value.
So if, for example, Bellway became 10% better perceived value than Redrow, or whatever, so I moved across, then the gap continued to widen, then, yes, Bellway is in that instance becoming ever better value so I just stay with it until things turn round as, until then, ceteris paribus, I'm still in best perceived value...
Conceptually, being prepared to hold on an ongoing basis at any time if the value never switches back again.
Of course, in the past, it always has at some point though it could sometimes take years...
Might be helpful to think in terms of a metaphor for this.... water.... which is always trying to fall/seep/leak/drip down to the lowest level....
In our case, the lowest level is best perceived value.
It does help somewhat not to have an itchy finger on the buy/sell button.... not always easy...!
Strictly
strictlybricks,
It's a cool niche that you have there and I am impressed with the returns you have achieved.
In 2014, it looks like Bellway became 40% cheaper than Redrow (I haven't done the full calculation you have described, so this is an approximation). If you moved into Bellway when, say, a 10% relative cheapness opened up, do you just suffer as the cheapness gets more extreme and goes to 40%? Bellway did eventually reverse and become more expensive but you had to wait 9 months.
Also, I presume you avoid builders like Vistry which have materially lower bv growth and worse ROEs, meaning they should always trade at a lower premium to book value, although that would make them appear 'cheaper'.
Pleasure to chat with you. Good luck!
Tom
MM,
Nothing too complicated to sort the book value per share in how I do it, as follows:
Take the net balance sheet equity of the most recent balance sheet, knock off any goodwill & intangibles (a lot of that on Barratt's balance sheet, but Bellway and Redrow are fine), and divide by the number of shares in issue (some companies are better than others on updating that) which gives you BVPS per the accounts date.
Then take the estimate of earnings for the year (for this calculation, this is often weighted between the two halves of the year as companies usually seem to have a tendency to make more in one half or the other), divide by 12 (notwithstanding any weighting) and multiply by the number of months gone.
Adjust for any ex-div date passed, and that gets you there...
May seem convoluted, but once you've figured out the accumulated formula you need, the spreadsheet automatically updates any revision in projected EPS.
And I'm typically within about 2% of accuracy, which is good enough to trade for the gaps I take.
Bellway is my benchmark share, and since I've been keeping accurate records for this, from 2013, I'd beaten Bellway by around 6% a year... may not sound much, but that doubles your money over what you would otherwise have had over 12 years.
Largely swerving the covid iceberg in 2020 has upped the average to around 10%, but I consider that a one off, fairly lucky move, and anticipate the average will slip back again in due course.
The thing with this is, I may now be an old fart of 70, but I have a lot of younger people in my group whom I'm helping with this and over a 36 year period, this performance results in three doublings above buy & hold which means ending up with eight times the invested capital ~ so it really is worth paying attention, apart from the pleasure of itself in beating the market, albeit slowly.
But, to return to your question directly, no, I never mess with the figures on balance sheets, revaluing landbanks or whatever, I'm not that clever.
I do, however, completely ignore declared EPS figures, which are often great works of fiction, and simply go from BVPS to BVPS adjusted for dividends paid to find "reality check" earnings...
Some companies, notably Galliford, are a nightmare with this.... they so baffled themselves with their own bulls..t a number of years back that they had to do a rights issue in the middle of the sweet part of the cycle, FFS!
Bellway's weighting is zero ~ it's my benchmark after all...
Currently, Redrow is on + 10% as its ROE is somewhat higher. But that means that, as of close of play tonight, Bellway is 4.4% perceived better value than Redrow.
I have been trading from Redrow to Bellway over the past week or so to take a 6% gap, but it's now closing again.
Bellway has a stronger balance sheet. As at the most recent balance sheet, overall liabilities were 32% of BS compared Redrow's 54%.
Strictly
strictlybricks,
Thank you for your reply. It is always interesting to see other people's approach.
I have two questions... when you talk of book value are you refering to equity/net asset value in the accounts + EPS - divs, or are you doing something beyond my ability like trying to revalue land banks?
Secondly, what is your benchmark for fair value for, say, Bellway? Bellway has historically traded at an average price to b.v. of 1.35. It's currently 0.9, so is your 'value gap' 1.35-0.86 = 0.45? Redrow scores the same if you do the calculation - does that make them similar investments for you?
Back in the last crash of 2008, Redrow and Bellway were very different beasts. Both had debt but RR had a lot! Bellway had to cut book by 10-15%, RR by about 50%. Today both have hardly any debt and I just don't see how they could have big writedowns. That means they become bargains any time they fall below bv per share.
Right now Bellway is below bv... that makes it the bargain. However I don't have the energy to trade them, I suspect they will both do well, and I chose Redrow originally because I estimated that it was growing its book value a few percentage points faster.
MM
"This time round RR is being smart, and share price is outperformng BW's for the first time in 20 years."
..............................
MM,
If you've looked at 20 years or more across these two companies then that suggests you pay attention to long term track records for this sector, as do I...
I've been in this for around 22 years but have the key numbers on Bellway going back almost 40 years...
It might be interesting to know more about how you're defining "outperforming"?
To give you a brief synopsis of how my investing circle looks at this in case it's useful at all, we give a book value weighting to each of the house builder shares we track, and from there come up with a price to weighted book value.
The weighting is our best assessment of relative worth for each builder per £1 of book value, and takes into account such things as (primarily) medium and long term return on equity, dividend policy, consistency, balance sheet strength, etc.
So, it is an amalgam of these to come up with a view, for better or for worse...
And part of this is getting to a more accurate book value per share, assessed for each month end or ex-div date, and the track record for this is that it mostly comes out within 2% accuracy once the next figures are published. For the most part, we're happy to trade on narrow perceived value gaps, but not generally less than 5% so the 2% accuracy is good enough for purpose.
Bellway ~ the Ghost Dog of house builders in my view ~ is a company I have a high (no, make that the highest) regard for and is one that I'm prepared to be 100% in if the perceived value gap is worth it (IMO, of course).
Some of my fellow investors find that prospect a tad unnerving, but then they're making their own investment decisions at the end of the day and twenty plus years in this says it works well enough....
Not stellar gains, perhaps, but it's definitely been like winning the lottery in slow motion.
So, the upshot of my long preamble is that, in our process of finding best perceived value, Redrow & Bellway have criss-crossed each other continually.
Obviously, we can't call this in advance ~ not being drinking buddies with Captain Hindsight ~ but when the perceived fair value point coincides with the gap between the two prices, it offers opportunities to trade while still continually seeking best perceived value.
Hope that makes sense, whether or not it's of any use....?
I find it's often worthwhile discussing this stuff with others who are thinking about it to some depth, regardless of the degree to which they seem to be on the same song sheet on this...?
Strictly
strictlybricks,
There is much to be said for clean accounting and management as you describe. However, when the share price is below book value (as is the case for BW, and no longer the case for RR) it presents a great opportinity for management to buyback shares.
For every share bellway were to buy back at 0.9x book, you as a shareholder as receiving 1.1x the cash spent, and on top of that you don't pay any taxes.
This time round RR is being smart, and share price is outperformng BW's for the first time in 20 years.
MM
"BWY should take a leaf out of RDW's book and start their own share buyback."
...................................................
Demos,
Perhaps this is a tricky one...?
In the forty years I have figures on them for, Bellway have never engaged in anything like that as far as I can see, and they have consistently paid one third of earnings as dividend throughout without being tempted into any "Me-too" wheezes with special dividends ~ even Redrow joined in on that a few years back with that special share issue & cancellation malarkey on every (I recall?) 33rd share.
Bellway's management is sober, stable and experienced over the long term, whereas Redrow got into bovver once, up to and during the credit crunch, and Steve Morgan had to return to sort things out, firing the management in the process, and in recent times they've been through a couple of changes at the top again ~ perhaps bringing new thinking, wheezes even...?
Bellway also has the best balance sheet in its peer ground, which, combined with all the above, makes it the safest in the sector to invest in as far as I'm concerned.
They remain the Ghost Dog" of house builders, in my view, and, for the absence of doubt, that's intended as a compliment to them (see the film with the same title to understand that).
And yet, they have announced a shift ~ in that they are, for the first time ever, intending taking the dividend up from one third of earnings to two fifths of earnings in 2024.
Wow, for Bellway, that's a significant move.
And yet, it's still very sober isn't it...?
No share buyback announcements, no flurry of excitement about returning capital to investors, just a calm, simple decision that clearly they don't need to retain quite so much of their earnings so the surplus can be paid out to investors in the traditional way, sans hype...
And taking all the above together with their average long term return on equity of 16% and being currently bargain-basement priced at a PBV of below 0.9 is why my investment capital is overwhelmingly in this one share for the time being ~ as you already know from communication we've had elsewhere outside of this chat forum.
Of course, I could be wrong ~ but then it's my own money I'm investing and I’m simply following my own judgment on this for better or for worse...
Strictly
BWY should take a leaf out of RDW's book and start their own share buyback. RDW's share price has been on fire since they announced. BWY is still selling at more than 10% below book value - so a good time to start.