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think the answer post 2008 was for Gov to put a lien on behalf of tax payer over 50% of builder assets and future sites. So when these were sold or developed the tax payer would have recovered some of the huge austerity taxes that rescued these assets from a crash base of 10% of their current value. This would have been fair.
Next the builder bonuses would not have happened. But they did. These are so far outside of anything that normally deserves a bonus, so far outside the pale of human norms that society has to act RETROSPECTIVELY (new point) and recover them in full and crown estate bonuses too (assuming they have been paid too)
You know when you write this stuff you feel like you are going to be labelled a 'terrorost' of sorts BUT i don't think i'm right, i know it. A bonus is something you are awarded for exceptional contribution/dedication etc.
The problem with undeserved bonuses is they set up a culture 'everywhere' that the system is there to be taken advantage by some short term trick and nobody will have the power or the influence to claw it back
Considering mid east oil exporters they should have paid/invested/invented to reduce tanker emissions out of profits. This might have reduced ship emissions 20% and would be a contribution or legacy to the world to be proud of .
£1000/day would be a fair charge for tax avoiders landed in UK because if that's high for them then they would regularise themselves.
there seems to be a problem that how you write a post is not how it is uploaded which is frustrating if you are trying to make very valid points. Thanks
Hi TMT and Strictly
What a good conversation!
Strictly, I'm still too busy with my system to have a look at your set up. The major parameters I watch are Margin, Eps, Cash Held and Divis, and rates of change for each company and how they compare to each other. If something is going pear shaped I expect some -ve 's in the above. I don't understand PBV enough to comment, but if the former OK I'm quite happy to keep them in my basic 5 Builders. Really can't do with another financial crisis (and nothing we can do about it anyway) and an article on BBC said the 2% drop in builders Sp's was due to coronavirus (which makes no difference at all to UK Builders).
Most of my gains over Ltbh come from avoiding the slumps (cyclical, during May, Sep and Nov), which creates the 20% more than moving money around, so an easy one to adopt even if you only invest in 1 company.
Still prefer to look at my RelPrice / RelStrength Graphs cos they create questions which need answering. Not even started that yet, but some are obvious like date of Brexit vote.
I also hold shares in nano and ggp, so despite drop in builders of about 2%, I made 0.3% today cos nano up 9.0% and ggp 19.2%.
TMT, Yes I have been retired since 1999, but still only 66. Didn't get back into Builders until 2013 and have been watching them closely ever since. I don't watch much else cos Strictly and me agree Builders are the best value by miles.
One thing you must remember is the Sp movement of builders is fairly cyclical and first slump not due until May. Of course external events might intervene, but almost none can affect Builders value.
Think Strictly has been in Crst, but we all have our own ways - he rejects psn cos of 3.0 PBV, I reject crst cos LSE. I made good money out of bkgh a few years ago (Imho best of LSE) but got out cos LSE.
You still have time to get into bdev before IntRes (05/02/20), which I think will be excellent - maybe 5% inc on that day, but the other builders will probably inc by 2 1/2 % on the strength of the results, reinforcing my idea of avoiding cyclical slumps is more important than chasing great results.
The system I am working on I am going to send to Strictly, not very user friendly cos I wrote it for myself, and a knowledge of Excel and Visual Basic would be useful. If you send me your EMail (Nige_W@hotmail.com) I will send it to you also. I was a Cobol programmer and don't know much about VBasic, but almost working again after big changes.
BoL to you both and look forward to the future discussions.
@Nige "Did you look at my Plan? Just run a test system optimised for 2020 - still doing 20% better than Ltbh.
Strictly thinks too much guesswork. I think some decisions are quite obvious so I have 45% float in bdev prior to IntRes (05/02/20). Hoping for 5% inc there but could be wrong, even if I am it's not a disaster."
I'm with Strictly on this. Well, not really. You've been following the sector closely for a long time, you've got a feel for what is likely to happen, who's likely to have good results when and who isn't. I don't have that feel. So I'm more in the LTBH category. I think you are retired. I'm not. I don't have time to immerse myself in a sector that heavily. So maybe it isn't too much guesswork for you, but it would be for me.
As you know, I took the Boris bounce and cashed out a lot a few weeks ago. Should have stayed in a couple more weeks but I got out of a lot before the recent drop, I'm mainly in PSN, BP, and ABF right now, with a couple other things I'm playing around with for fun. Getting very tempted to get back in with the recent drop in the markets, I expect the panic to probably blow over soon and things to go again, so this may be a golden buying opportunity.
Right now, I'm still staying with PSN but I doubt I'll add to my PSN when I re-invest in builders (either this week or this summer).
So I guess you could consider this an admission that even though I say I'm LTBH, I do try to time the market sometimes, too. Made a really nice profit on the builders I bought back before the election, one of my better moves, even if I did take profits a little sooner than I needed to. Never time it perfectly.
One risk with your system is that all these shares are impacted by the wider market. We'll see huge moves because Xi and Trump sneezed at the same time, or because the smiles when they shook hands were bigger than people expected. Silly stuff sometimes. That's going to drive things sometimes far more than company results. But, your system does appeal to me if I really had the time to work it out for myself.
Strictly, I've been working in the investment industry for many years, and still am. I don't think I'm flattering myself to say I know a little bit about investment.
When it comes to this sector, though, I'm a babe in the woods compared to you guys. You guys have been following this for a long time.
I find CRST intriguing. Dividend is comparable to PSN but dividend cover is better, PE ratio better, cash on hand in percentage terms better, land bank larger in relative terms. Not trying to grow, though, and SE-focused which makes me nervous.
I bought into PSN because I was convinced the new mgmt team "gets it" as far as build quality / customer care, and also as far as the need to get out in front of bad news. So far, I'm happy with that, every piece of bad news in the last year, they've been able to say, "Yes, it's true, we're already addressing it." I expect the press coverage to start saying, "These are good guys, they've cleaned up the messes." It's already started. Once that gets rolling I expect to see another 15-25% on the SP, and will probably then shift to another builder, they'll be overpriced relative to the sector.
You think they are overpriced now. We're judging on different metrics. The right answer obviously has to factor all metrics in, as well as other non-fundamentals. Included in that, for you, is that you don't trust them. That's fair enough, and fair enough for you not to give the reasons in an open forum. Not really something I can factor into my thinking, though, without specifics.
I don't think any of these shares are losers. The whole sector is undervalued, still. I'm pretty sure of that.
The biggest difference in the PBV is the inventories -- even though PSN is significantly bigger, BWY's is higher. Why? If I were heavily focused on PBV as you are I'd want to understand those numbers before relying on them.
Thanks for the discussion, I've certainly learned some things. I suspect CRST is going to be high on my watchlist and I hadn't really given them much focus at all.
Nige,
I have a number of thoughts about Persimmon but some are not for discussion here and they generally come under the banner of my not trusting them - I'm happy to discuss this with you on the blog, though, which is by invite only, but you already have access to that...
But I don't consider I need to really consider all the other points given that the PBV for Persimmon is 3.0 and I consider that to be rather terrifying - even though my personal mantra on all this is that I'm more fearful of being in cash when I should be in shares than I am of being in shares when I should be in cash.
This relates to builders shares of course - like you, this is the only sector I invest in.
My fear of cash is two fold...
Firstly, that if I'm there, that might be the moment the world wakes up and decides it's seriously under-valuing builders' shares - I think you and I are of a similar view on this...?
My other concern is that the world wakes up one day and decides that it has morphed into a global Weimar Republic.
In the meantime, Persimmon may or may not resolve it's quality issues, and other aspects that I regard as a shadow, but, at 3.0 PBV, the price needs to drop by around 40% to be of any real interest to me...
Being a lazy git, I prefer the easy questions on any exam paper - and, to coin my son-in-law's phrase, Persimmon is in the "too-hard-drawer" for me.
But obviously, given its heady price, others don't agree - so mine is clearly a minority viewpoint.
Strictly
Hi Strictly
As you know I invest in 5 Builders, all of which have great fundamentals. One must be the best, but because of my system it doesn't really matter which it is (besides spreading the risk).
I don't study the accounts in much detail, I compare critical numbers, but they are all pretty similar. Think my relative price and relative strength graphs are more useful. I also think going back in History is not very useful. Building now is completely different from what it was before Banking crisis, so anything before BC is meaningless. For instance Per before BC was around 13 which was not unreasonable given cyclical nature of building, but as I have said I think 25 is not unreasonable now.
One thing you didn't mention about psn is the quality issues, which is my main concern. Obviously new management is addressing that and it is costing them money, and will continue to do so? Even when fixed how long will it take for their reputation to recover (but maybe doesn't matter too much while demand so much gtr than supply).
Hoping to make 5% out of bdev IntRes but Sp kept on increasing until mid April (Sp 04/01/19 474, Sp 12/04/19 618), big slump started in late May and lasted until early July.
Don't know (nor care) if this was due to Brexit, but there usually is a slump in May or later so need to watch Sp's carefully, and get out when it happens. Even if you only invest in 1 Builder you can considerably improve your performance by avoiding these slumps (and usually 3 per year other two Sep and Nov).
All floats bought 25/11/19 and up 19.8% so very happy.
BoL
TMT,
I ran out of room to finish off in the last comment, hence the part 2 here...
You've given a list of pro-Persimmon factors, copied & pasted below...
.............................
"Bellway is significantly more exposed to a downturn, IMO, on the following key points:
Greater exposure to the high-priced southeast, which makes them more vulnerable to falling house prices in a downturn
Significantly less cash
PSN's ratio of plots in their landbank to annual completions is substantively higher than BWY's, which means they have more scope to reduce land purchases in a downturn
PSN's higher margin means they are better equipped to handle falling house prices or increasing costs due to Brexit or other factors
PSN is also perhaps less vulnerable to supply disruptions due to their own brick and roofing tile works"
...................................
To be frank, all these may well be valid, but I regard them as being above my pay grade in terms of what I take into consideration as for me it's pretty much all about particular numbers and especially since I consider I was partially mugged by the high regard I'd had for JDS at Telford - even though the numbers there were increasingly telling a different story (and I think I was a minority viewpoint there on that share chat at the time...?), and I lingered too long in the share yet not long enough to be around for the 350p offer - out the day the bombshell announcement confirmed my worst fears about them.... ouch, it hurt, but we all lived to fight another day (strictly bricks might be my name here, but it essentially stands for quite a number of people all pretty much investing to the same strategy - hence the"we all" - if it interests you, let me know...)
Anyway, enough on all that - I'm out in Spain at the moment and it's an hour ahead of Blighty - so it's almost midnight here now...
Strictly
TMT,
From your replies, clearly you look at this from a very much numbers-based perspective, the same as me, but it seems you're looking at different numbers to some extent - and that might lead you to a different view...?
But that's okay, as long as each approach works for its owner...
Firstly, you were correct in that, to use your word, I do see fiat money is possibly now "creaking", and maybe reaching it's sell-by date, but the more salient point there was that I don't see how the world can escape low interest rates easily any time soon...?
Someone once said, tell a big enough lie often enough, and most people will believe it - the big lie in this case, it seems to me, is that interest rates have to go up soon....
That's been suggested for nearly a decade now... not the least from Dapper Dan our Canadian pal in Threadneedle Street...
And the person who originated the comment above knew what he was talking about - it was Goebbels...
Anyway, with regard to Persimmon & Bellway, I don't take ROCE into account, I use ROE but do take into account balance sheet strength more generally.
I did have a discussion with Josh95 a while back here about ROCE... he was a big fan of ROCE, and of Crest at the time based on this, but they haven't stood up since - though I do now hold some of their shares as their PBV, IMO, justifies it despite the disappointing recent results which means I give them a negative 20% weighting against Bellway.
They are a recent example of a company on a high PBV, due to current performance at the time, then slipping and taking a pasting accordingly.
Big time.... Crest performance since the start of 2013, with divs reinvested on the day, 133% compared to Bellway three times that at 400% - that's what I call painful!
Anyway, at their respective last balance sheets, Persimmon had overall liabilities of 64% and Bellway were at 33% and best in class in this respect.
Since 1998, Persimmon have averaged 17.7% ROE and Bellway have averaged 17.4% ROE, a modest difference given the yawning gap in PBV of 3.0 vs 1.7.
And I don't entirely trust Persimmon, the reasons for which have been considered on our private blog (Strictly Bricks - my nom de plume here) but are not appropriate for a public forum discussion IMO..!
If we put aside what builders' shares might really be worth in a world of ongoing low interest rates (something that I think Nige, like me, gives a lot of consideration to...?), in the world of how the market has always viewed them over the past 35 years or so, 1.5 PBV is about the average over the long term and, IMO, PBV is safer to use as a steady comparator, as ROE, and therefore P/E, can wax & wane and, as with Telford pre-crunch, investors can get seriously caught out if they're not paying attention to that - just ask the musketeers who were long term TEF fans on that share chat - now no more (we still communicate outside of LSE, though...)
Strictly
Hi TMT
Cannot believe we can have another financial crisis any time soon, you would have thought safeguards had been put in place after the last one.
Concrete bricks post from BenRumpson, probably easiest way to get to it is by looking up his profile / messages.
I'm sure you will get on fine with Strictly.
Did you look at my Plan? Just run a test system optimised for 2020 - still doing 20% better than Ltbh.
Strictly thinks too much guesswork. I think some decisions are quite obvious so I have 45% float in bdev prior to IntRes (05/02/20). Hoping for 5% inc there but could be wrong, even if I am it's not a disaster.
BoL
Hi, Nige. I think Strictly is not necessarily suggesting low rates are coming to an end. He's suggesting that the whole fiat money system is creaking and a collapse might not be twoo far in the future. If so, shares aren't the place to be. You want property, cash (though it might be heavily devalued), and gold or silver, if you are concerned about that possibility. And being debt free is probably a good idea as well, though no one knows what might happen -- your debt might end up inflated away to nothing. But there's a risk, in a total collapse, of major deflation which would increase the pain of any debts you have.
Anyway, I'd missed the comment about PSN's concrete blocks. Will want to chase that one down.
Why wouldn't we have a civil/courteous discussion? I tried to have one even with exstatex before I filtered him, if I can try to do that with him I can certainly do so with someone as knowledgeable as Strictly. Especially since the logic of his approach is very obvious. I can see what he's seeing -- I'm just not weighting it as heavily as he is. But it's possible that there are other factors I should be considering. No reason to throw money away on poor investment decisions because I wasn't willing to learn from someone!
Hi Strictly and TMT
Wow! I have the greatest respect for both of you, but this is what these Boards are all about. Constructive Discussion, so I hope you can both continue a civil and courteous conversation.
We can all live and learn off each other.
Hi Strictly
Thanks for the Info.
A downward drift in House prices adjusted for inflation infers Houses are becoming cheaper, but doesn't mean much if Builders margins (generally) increasing, other than Companies addressing specific issues (Psn quality, tw seems to have overcome that now).
You infer that the end of low interest rates could be approaching. I don't think so. Banks set interest rates now (not the Govt) and make money out of lending money. So just as a housing slump created by high interest rates, so business will not borrow if interest rates high, so Banks would be losing their main business, if they increased rates.
As I have said I don't watch PBV, so can't really comment on that.
Hi TMT
I sent a message on tw about how relative prices converging, which implies Sp's driven by momentum and highest priced (bdev) should be higher, while lowest (psn) should be lower.
Once momentum out of the way the Sp's will diverge again. I love your comparison and look forward to Strictlys reply.
Another possible criticism of psn is their "brick" factory makes concrete blocks which are terrible for expansion / contraction and sometimes need to be repointed, (from Ben on tw board).
I realise these are short term issues and you look at the longer term - I think prospects of both are great.
As you know I base my system on upcoming RNS's (buy before if I think they will be good) and sell later when Sp stabillises), but RNS's don't really matter.
All that is important is Relative Share Price movement, which leads to my current Plan.
I have 44.6% float in bdev for IntRes 05/02/20 (which I hope wii be good), 32.0% in rdw cos I think they are undervalued and 23.4% in psn for Divi should be 125 (XDivDt 07/03/20) after which no great drop in Sp cos another Divi in June.
No float in bwy at the moment but intend to buy early June and hold until FinRes mid Oct. Between those dates (in early Sep) there is usually a slump, so will keep an eye on Sp and sell, buyback, if a slump happens.
Then sell all mid May and buy back early June (rdw, bwy and psn or tw).
Tw has been outperforming psn recently and better PreFin, so will probably go for tw. Also psn still in recovery process after quality issues, which could still be affecting their results.
Sp has recovered well (maybe too well?)
Look forward to continuing this discussion with both of you and BoL
@Strictly
I understand your focus on BV. And now, PE Ratio would also (marginally) point to Bellway as a better investment than PSN. But on the other hand, PSN is substantively better on the following metrics:
ROCE
Margin
I'd add gearing, as well. Both are low but PSN is very, very low.
Bellway is significantly more exposed to a downturn, IMO, on the following key points:
Greater exposure to the high-priced southeast, which makes them more vulnerable to falling house prices in a downturn
Significantly less cash
PSN's ratio of plots in their landbank to annual completions is substantively higher than BWY's, which means they have more scope to reduce land purchases in a downturn
PSN's higher margin means they are better equipped to handle falling house prices or increasing costs due to Brexit or other factors
PSN is also perhaps less vulnerable to supply disruptions due to their own brick and roofing tile works
Those are the reasons I've done exactly the opposite of you -- sold out of BWY entirely and remained heavily in PSN. To me, the factors I've cited outweigh the BV consideration, not because I think it is irrelevant but simply because I think other factors are more important in today's market. If there are other factors you think I'm overlooking I'd be glad to hear about them.
Nige,
You may or may not prove to be correct as far as housing slumps being a thing of the past, but you might find it worthwhile going onto the Nationwide's website via the link below then click on: UK house prices adjusted for inflation...
https://www.nationwide.co.uk/about/house-price-index/download-data#xtab:uk-series
If you ignore the sharp trough between 2007 and 2015 which, no doubt, we can take to be a consequence of the credit crunch, there is still an overall drift down from 2007 to present in terms of house prices adjusted for inflation - though actual house prices have gone up over that time so perhaps, overall, it's a moot point...?
However, from both our points of view, certainly an area of interest to keep paying attention to... and of course, it's taken a bumpy journey of over 200 years for interest rates to fall to where they have and maybe we're now staring at the end of the road for fiat currency..?
Which, if that IS the case, would no doubt be of far more significance then whether or not the property cycle has been cured in this country...?
But that's probably not really a topic for here... :-)
And I wouldn't necessarily agree that Persimmon came through the crisis better than any other builder...
If you take a pre-crunch BVPS high for both Persimmon and Bellway - because "interpretation" of values on balance sheets would have no doubt been different for different companies going through the crunch, and, I would suggest, especially for Persimmon as I imagine they had that big directors' bonus in mind right from the get-go, then, on the most recent figures I produced on this - they're not fully up to date - Persimmon had gained 203% book value from their previous peak including dividends and Bellway had gained 234%.
And Bellway were the ONLY house builder to keep paying a dividend all the way through...
And you can currently buy Bellway for less than 1.7 PBV, while Persimmon will cost you 3.0 PBV.
Which is why I'm holding a lot of Bellway but zilch Persimmon.
3.0 PBV is historically scarily high for a house builder..... if you're right about the housing cycle, it may not prove to be high for the future... but personally I don't want to bet on that.
The biggest ever builder PBV that I have a record of is for Telford, in early 2007, after some years of consistently having made an ROE of over 30% from the start, i.e. they came ripping out of the starting blocks, and, as a consequence, they got up to a PBV of 4.0 and a share price of 430p.
Unfortunately, Telford never recovered that awesome profitability after the credit crunch and, even though all they did since was make a very minimal loss through the crunch (in comparison to most other builders) and then carried on being profitable thereafter, they still ended selling out last year at a price of 350p, some 80p lower than the pre-crunch high all those years previously...
Strictly
Hi Col
Building is Not Cyclical any more. Besides the banking crisis (100 year cycle) there has not been a slump this century.
Psn survived the banking crisis better than any other builder (cos held net cash) and now has far more cash.
Much more important is fixing Quality issues.
BoL
The PSN long term plan underwrites this years divi at £2.35 and next years at £1.10. given that they paid the second half divi in July and increased the cash balance by £11m over the past 6 months they would seem to have room to increase next years divi towards the present level. they have indicated that further guidance will be given when they present the full year results at the end of February.
The sp is held back by the fact that they operate in a cyclical industry and will only be rerated when they demonstrate that they can maintain the dividend through the cycle
Multiple factors on the recent SP increases, I think.
1. Shares have been undervalued due to political fears, and political fears are receding somewhat.
2. Results coming in are in line with continued profitability and good dividends, and the results are simply causing people to look at these companies, and saying, "Hey, that's a good price."
3. Broker upgrades definitely a factor.
4. Lots of press articles on "shares to buy for the new year" running around, and builders got a lot of mention (somewhat like the broker upgrades).
5. Shares generally are up so not surprising these would be, too.
6. Lots of buzz around about UK shares being undervalued compared to US, I do think there's some international money coming in now that Corbyn and his like have been seen off for 5 years. There's still nervousness around Brexit but I suspect a lot of investors want to get in before then. Here's one example, note the comments on the UK near the bottom: https://www.bloomberg.com/features/how-to-invest-10k/
7. Lots of rumours about cuts to stamp duty which would presumably help builders.
So, I think you are partly right about the broker upgrades but it's just one of several things. The bottom line is these shares have been undervalued and there are various factors that are contributing to people waking up to that.
We're now well past my initial target when I got in, I'd targeted 2850 for PSN UNLESS we got either no-Brexit or Brexit with a deal. Since there's a Brexit deal that bumped my target to 3200, if we also get a reasonable trade deal I'm looking for at least 3500.
bdev,bkg,bwy and vestry have set new all time highs except rdw,countryside,mcCarthy crst.persimmon made an alltime high recently but retreated but is catching up again,also the price rally seems to be caused by a lot of broker upgrades and price target increases last week more than the resultsThere was a double upgrade for tw. on Monday before the resultsupgrade for bdev on Tuesday and also a price target increase for psn to 3096,bwy upgrade on Monday.
what do all think?
I don't view it that way at all. The drop in revenue was expected due to delaying sales until closer to completion. It's a one time adjustment. The sales that were delayed will come through in the next year's results. The focus on build quality and customer satisfaction is not without cost but it hasn't crushed profitability and it had to be done. Customer satisfaction ratings are trending up.
So far Mr Market seems to be happy. I am. Looks pretty much like a 'steady as she goes' statement.
Cash on hand is lower than a year ago, it may mean a little lower dividends this year. That's ok, there's enough for a good dividend and I expect the demand to continue to be there, the houses to keep being built, the cash to keep coming in, and the dividends to keep rolling out. There's nothing here that changes my view of the company. Rather it reaffirms my view, that build quality and customer satisfaction matter and the company is actually taking substantive action to improve those things.
Not sure how Mr Market will react to them results but my first thought is POOR.....