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Putinomics. The dictator stays in power by supporting those that have whatever they do. If they cheat he will give state intelligence power/info to them or bent judgements. So becomes place to go for such people. And this is the con underlying his success. Simple but effective. Do something about URA . (Or we drill to prove lies)
Our own lot just had assets rescued by taxpayer, themselves pay no tax, to rub in pay themselves bonuses, make sure nothing in press about it. Still worship (what?)
Green energy delayed. Spot the difference.
Solution shut down all tax avoidance havens, release all info, show where money is and how it was got. Build the infrastructure we need. Cancel and remove the dangerous polarity, brinkmanship and abuse of tax payers and the completely false narratives by cutting off tax avoiders asset base/secrecy etc.
We become interlinked world citizens tackling the interlinked problems and immune from false imprisonment on phony charges 'because' disloyal to medievalists and their ignorance
And return cheating builder bonuses, crown estate, builder supply, banker, big landlords etc. Every single event is followed by political powers working out how tax payers can be reduced and tax avoiders increased. Followed by inaction unaccountably increasing authority. Austerity took 2 blinks to be signed . Action to get money from the rescued (completely) tax avoiding landlords is worse than water from stone. Therefore we all need to rapidly act against Putinomics across the board imo. Can't lock up millions with false confessions?
I think the most interesting thing here is the sheer cowardice of the intelligence services. They know how and for who the financial system is cheating and drastically robbing next generation of hope, opportunity and democracy BUT they are scared because it is bigger gang/problem than usual. They pretend it isn't happening. They pretend big landlords and HMQ didn't steal the 1-2 trillion. They pretend politicians are democratically chosen . They pretend politicians are intellectually able to build the infrastructure we need (20+ years late). They pretend worldwide cooperation necessary can be done/encouraged! by such people. They pretend we are all acting on time and that any delays won't lead to instability and needless fighting about things that can so easily be solved. They will pretend that any instability won't be huge opportunity for records of what has taken place to be hidden.
You've only got to look at OCT and URA to notice that criminal gangs are operating in investment markets. Regarding URA this is worst example of Russian medieval small print cheating ever. Intelligence services need to act insisting on standards. We cannot ignore where these people are storing their stolen wealth. It is in tax avoidance havens and it is in Israel which needs urgently to state whose funds it is holding ( in a straight forward clear way which involves no need for follow ups) so we can understand them better . This tax avoidance and the 'take it private fraud' is integral to what has happened. They have taken our bent standards and 'improved' on them because there is no way our big landlords should also be tax avoiders. They are not British and are not upholding the British problem solving tradition. Neither is Vladimir the poisoner Russian . Need to take all funds from tax havens and build the required worldwide infrastructure and underline the theft of austerity and the totally cynical, crimmie builder bonuses (and banks, crown estate, property lawyers, builder supply etc)
Or if you are British Intel pretend it never happened
Or if Russian Intel pretend Putin and oligarchs didn't /don't Rob people and you 'domt' know where the 100s billions are! Or the bottles of poison.
It's like intelligence forces know no history. It's always when standards slip that huge problems happen. And religion and some extent nationalism are just waiting in the wings to fulfil their role of being best splitters of people on the planet. So it's the poor standards ok , so what are you doing?
All these guys have paid themselves bonuses and increased wages . Politicians made sure £1-£2 trillion in extra taxes went to this sector ONLY. The infrastructure and jobs and new tech and hope for next generation this could have built is off scale. Politicians are basically puppets of big landlords, the latter tax avoiders so avoided austerity themselves of course. Even someone as stupid as me would have made a bloody good effort building the required infrastructure and not rescuing these people so completely so they can foist this false meritocracy on us that land/property rental ownership is all that matters. It was the robbery of milennium post 2008. The builders and all ancil seeing this and in a non adult crimmie way ignoring the hardship/stupidity to our future of this rescue rushed to write themselves bonuses, or just have paid themselves bonuses/increased wages since. They all have. Banks, crown estate , property lawyers, equity release, insurance cos, builder supply. etc. Of course JF as you say was the biggest low life crimmie But plenty others have just seen their property portfolios rescued and are keeping very quiet about it. We not only have to rescue these people we have to next (after unnecessary 20 plus year delay) pay them rent to use the land for our progress and so you can imagine meetings where discussions of value take place with all the usual type of small minded property obsessed managers and at no point does the conversation mention that they were actually useless business people with all their eggs in one basket who were then humiliatingly rescued by the poor tax payer and to say thank you! FURTHER paid themselves bonuses to rub in the robbing the job security/economic security of the general tax payer and especially those who would have definitely positioned the economy much better. So we can conclude they are crimmie characters. Let's just call it. It'll help lack of intelligence organisations to investigate them further. Crimmie characters hide lots of other stuff apparently. Keeping quiet putting time between crime and present is another so they will be able to extract explanations under oath. After that we can worldwide shut down tax avoidance havens (and I'm guessing some sovereign states that also conspire to hide assets of tax avoiders - no names but US know where Putin's money is they say) and fine all involved, but just shut them and if necessary put international forces on ground. JF absolutely is the indicator of what's behind the scenes
Book value. House building is a complex business model. Key metrics need to be kept in sync. Important to have a decent land bank, in line with the sector normal, otherwise in the event of a very long cycle, like this one, a builder can be forced to bulk buy when land prices are at there peak. Important to also have a cash pile at the top of the cycle so that the builder can bulk buy land following a sector crash when land is cheap. The late Tony Pidgley at Berkeley was always rather good at cyclical management. To understand Persimmon's current position you have to understand Persimmon's recent history. Enter the legal highwayman, Jeff Fairburn. You could write a song about him, set to the tune of The House of the Rising Sun by the Animals. 'there was a greedy man in Persimmon Town, Jeff Fairburn was his name, he held the board right under his thumb, then he screwed them down again, now Jeff he was a savvy crook, all entirely within the law...' and so it goes on.
The Board was guilty of near criminal negligence in giving Jeff an effectively uncapped bonus linked to declared profits as I understand it. As we often say, operating profits are very misleading, especially for house builders. Jeff needed to keep the gullible Persimmon Board and shareholders sweet, so they were paid off, I mean well rewarded with high divis, salaries and bonuses etc. Then Jeff was free to work his magic, well not much magic really, build fast and cheap, don't worry too much about quality, cut short term operating costs wherever possible to maximise declared profit and above all else do not adequately replenish the land bank. Several larger house builders post 2008, tended to refer to large land banks as the enemy, the reason for their woes in 2008. Clearly a business can over spend on a land bank, as you can over spend on anything, but I was baffled by such statements, 2008 builder woes were due to lack of cash reserves and too much dividend not the land banks, a large land bank bought cheaply is essential for a house builder in a long cycle. No, what house builder CEO's were doing, none more so than Jeff, was giving justification to 'strategically' shrink the land bank so that short term profits could be maximised, without the need for adequate cost provisions for replenishing the land bank. This is how Persimmon maxmised short term profit, maximising Jeff's bonus. Yes, the divi was large, much too large actually, but this was essential to keep attention away from Jeff's approaching bonus date. So that is why Persimmon has a land bank the same size as Henry Boot, Boot being about 1/25 the size of Persimmon and with other parts to the business also. Also, this is why Persimmon feels stuck with very high dividends, they may restore the divi on partially post Covid perhaps, which would be appropriate, but probably not, the Board is clueless, as for the land bank, no easy fix here
"In my view, you are significantly overrating book value as an investment metric"
TMT, you are correct insofar as I put high store on book value, or, more specifically, weighted price to book value (the weighting element is a Strictly Bricks metric) but I think we'll just have to agree to disagree on whether or not it's an over-emphasis - though I can say it's served me well for more than twenty years in the investing game.
The other aspect of this is that it's about relative book value and price to book value.
And Persimmon's is so much higher than either Bellway's or Redrow's.
I have a thing about cutting the cake as many ways as possible to see if I can find a maggot lurking somewhere that wasn't otherwise easy to see.
Given that the different builders made different balance sheet responses following the credit crunch, one of the things I did a few years ago was to take the pre-credit crunch BVPS high for each company, and compare it to now.
This then takes out differing land bank write down policies that happened in between, given the likely different agendas of different companies (I'm thinking of the now notorious capital return plan/directors' incentive at Persimmon, which tarnished the entire sector in the eyes of the press for a while).
And I've only got the numbers on the book value per share and don't currently have that adjusted for divs paid ~ that would be a bit of a mission to sort, but I now feel motivated to do so in the near future for such time as another discussion like this crops up so that I have the answer to hand... :-) ~ and just using the book value change, without the divs, does put Persimmon at a disadvantage because they've paid out so much more in dividends over the past eight years than have Bellway.
So, I may come back on here with the updated numbers as, if and when I sort them.
But I can say that, in the meantime, the extra divs from Persimmon do have a lot of ground to make up to put them back in the game against Bellway.
Because Bellway have grown from pre-crunch high BVPS of 934p to current BVPS of 2,695p, a gain of 188%
Whereas Persimmon have grown from 627p pre-crunch high BVPS to current BVPS of 1,045p, a gain of only 67%.
The thing is, Persimmon took a BVPS write down of 30% after the crunch, compared to Bellway's measly 3%.
And that serious write down came quite in handy given it was around the time of the start of the directors' performance bonuses....
The upshot is that I have a negative book value weighting of minus 20% for Persimmon against Bellway's 0% (Bellway being my benchmark share), so that puts Persimmon's weighted PBV on 3.79 against Bellway's 1.36.
Almost on another planet, in other words....
Obviously, we'll just have to wait & see how things pan out from here but, in the meantime, I'm certainly not experiencing any Persimmon FOMO.
I would disagree about book value. I think the superior returns of Redrow and Bellway over PSN in the last 8 years would indicate which have been the better investments. As PSN is on such a high valuation of course there won’t be as much room for sp growth compare to other builders which is what probably has happened here. I do agree with both sentiments though that in the coming few years the sector is on a one way ticket upwards but as always some will probably perform better than others. Inflation and interest rates are likely to assert some clouds within the next 12-24 months although will be tempered if strong growth in employment and pay.
I do feel that if you place a higher score on p/bv then you will limit your downturn compare to a higher rated shares. This is what will happen to tech stocks when the fed stops printing easy money and the tapering begins / rates increase.
@strictly, we've discussed this before, have we not? In my view, you are significantly overrating book value as an investment metric, especially for housebuilders in a housing shortage.
I do agree that the capital return programme is not sustainable in the long run -- it was never said it would be. I also agree that dividend levels have an outsized / dangerous impact on investor sentiment. I certainly agree that there comes a time when the capital return will be winding down and that is on the nearer horizon, and the SP will reflect that.
I'm of the view that PSN has positioned themselves beautifully during the downturns and are continuing to reap the benefits of that. In my view, the only reason we aren't between 3500-4000 is negative sentiment due to bad publicity, and the bad publicity problem is being addressed and receding. There will definitely be a time for me to top slice, and a time for me to move entirely to other builders. You think that time is now. I don't.
I think the profitability is going to continue, the capital return still has some time to run, the feel-good factor of reversing publicity still has some payoff, and because of those factors the sentiment is likely to continue to be good on this share for another 20% rise in the SP, possibly more. For now, I'm staying put.
I'm less than 10% in housebuilders right now, FWIW.
"Thanks for the thoughtful post. It's an interesting thought -- that PSN is too successful and it makes you nervous. I can't say I've ever thought that, but it's something for all investors in PSN to consider, I suppose."
Taking My Time, if you give Persimmon the benefit of the doubt that their higher margins are not illusory or temporary or both, you are still left with the issues I've outlined below in my reply to Retired Banker.
However, there's more to this.
If you take Vlad's metric (or Bogdan which is his moniker he is known by in the Telegraph online) of "shareholder surplus", being dividend yield plus percentage of book value of retained earnings (which is very close to how I do things but Vlad/Bogdan has quite a following so his particular metric is fairly well known), then I have some specific comparison numbers drawn from my own spreadsheet records to compare Persimmon to Bellway and Redrow, which are the companies I prefer to invest across.
If, like me, you are solely invested in house builder shares (as the name implies), there's a blend of three things to make money from ignoring any movement from shares in and out of cash.
These are 1) shareholder surplus 2) additional profit from trading between house builder shares and 3) increase in PBV.
3) is unsustainable, which is why Vlad's metric is a good one because it removes 3) from the story.
Since the start of 2013 to date, total shareholder surplus for Persimmon has been 177% against Bellway's 265% and Redrow's 308%.
What this means is that if all three shares dropped back to their start of 2013 PBV, that's what you'd be left with.
And who is to say that that won't happen at some point...?
Especially if Persimmon's underlying out-performance proves to be temporary?
The only reason that Persimmon have outperformed the others in the market (as opposed to underlying company performance) overall is because they've done so well with 3)
As someone who is not invested in Persimmon and has no intention of doing so under the current circumstances, my suggestion to Persimmon share holders would be to keep an eye on what percentage of earnings they pay out in dividends in the future as compared to the other house builders...
Because I don't see how they're going to be able to extract themselves from the corner I think they've they've painted themselves into without a bump..?
As if and when that happens, after what I consider is likely to be the inevitable denouement to follow, they might become invest-able again for me...?
But, until then....
"PSN seems to generate way more net profit than it should, which makes me nervous. "
I've only just noticed your comment as when I come on LSE for a quick butcher's at the comments it's mostly on BWY & INL share chats which is where I'd generally make any comments on any of the house builders.
I share your concern about Persimmon's profit however, as I see it, it's worse than that.
Persimmon pay out nearly all their earnings in dividends and also their price to book is at an eye-watering (for the sector, at any rate) 3.0 whereas 2.0 would be high for the sector at the best of times let alone still coming back from covid.
I suspect the one begets the other...
By which I mean, Persimmon have been so profitable in recent years that even though their PBV is so high, the fact that they're paying out nearly all of those high earnings means the dividend yield remains high and you only have to read a typical few dozen house builder share chat comments to see that, for many investors, dividends rule okay, and never mind looking through them to the story behind.
And Persimmon's high share price brings its own problems.... not for the now departed King Jeff, perhaps (and you have to take your hat off to him for what he made out of all this for himself) but for existing shareholders.
Firstly, because Persimmon are, IMO, stuck with paying out virtually all earnings to keep the dividend yield up for all the folk who don't look past that and so maintain the high share price, there's nothing much retained in the pot for growth.
Which allows for other great house builders, who don't make quite the same margins as Persimmon but who retain most of the earnings for growth, to be looking to overtake Persimmon in due course on current trends.
And if Persimmon cut their percentage of earnings paid out as dividend back towards a third which is the sector norm, their yield goes down the pan on current PBV and one might easily imagine that the share price would likely follow...?
From the point where I'd reasoned this all through for myself, I no longer invested in Persimmon.
This comment is not likely to make me popular on this board (a bit like being an Arsenal fan amongst a Tottenham crowd, perhaps?), but I see Persimmon's share price as being an accident waiting to happen as and when their performance stumbles.
Only problem is, no crystal ball, so I don't know when it's likely to happen...?
But that does bring it nicely back round to your concern... :-)
Thanks for the thoughtful post. It's an interesting thought -- that PSN is too successful and it makes you nervous. I can't say I've ever thought that, but it's something for all investors in PSN to consider, I suppose.
Have you looked into why PSN is so much more profitable than the others? I've assumed a big factor is very good strategic use of their land bank. Others include no debt, the ability to pay cash allowing them to negotiate better deals, targeting the low end of the market allowing them to use non-premium priced materials, etc.
If there are good and understandable reasons for the higher profit it's a shame to miss the opportunity. If there aren't, we should be nervous. I admit I've not pushed very hard on why, I've just said, "Wow, look at the profit, they're doing a great job!"
This is something I've been thinking about recently. I bought into several housebuilders back in 2018. They have served me pretty well even through Covid, although the loss of special dividends was a shame. I originally bought PSN / BDEV / BVS now VTY / CRST and GLE. I still like BDEV and will continue to hold ... but on analysing TW. / BKG / BWY & RDW I'm tempted to switch from PSN / CRST & especially VTY into TW. & maybe BWY & RDW.
PSN seems to generate way more net profit than it should, which makes me nervous. CRST & VTY don't seem to be capable of sustaining decent net margins.
The outlyers are BKG & GLE. BKG focusses on high end properties around London ; GLE on affordable properties in the North ... I'm very torn as to which strategy will be more successful in the next 2-5yrs. It's been 20yrs since I first thought London property market couldn't continue to outperform ... and I've been wrong for most of that time ; so if you believe in mean reversion back GLE if you feel the trend is my friend then BKG looks cheap
Good luck with your own research
I still think PSN is one of the best positioned. I think that the economic hit of covid is not yet fully felt and that we're going to see major tax rises. That's more likely to hit the top end of the market than the lower-priced segment. I still think the housing shortage means that the lower-priced segment of the market will be supported in various ways by the government.
So I'm still heavily in PSN, I think our run still has a ways to go. I'll probably top slice somewhere around 3500 but this will continue to be a significant piece of my portfolio for some time to come, I expect.
I think buying into housebuilders in the last 6-9 months has been a no-brainer and pretty easy money. Since it became clear they would be able to ride out the pandemic and recover rapidly this has been a great investment sector. From this point forward however, I suspect it will not be so easy. Does anyone have any thoughts on which of the UK housebuilders are still undervalued and have further to go? I'm thinking quality housing in the right locations is the key (without having precise ideas on what that actually means just yet).