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Hi Skeletor
Just looked up Ulvr on fundamentals here
I disagree with some of the numbers like Per and EpsG my estimate
Coy, Per, Mrgn, Yld, EpsG
ulvr, 14, 14.8, 3.0, 8.0
tw, 11, 20.3, 10.6, 17.0
If tw Per 25, Yld down to about 3.5 as you say, but still better than ulvr, and margin far better while EpsG more than double.
Can't see interest rates going higher, nor Banks becoming reluctant to lend money - that is what caused the Banking crisis, which almost destroyed the system and cannot be allowed to happen again. The only other critical factor to builders is supply / demand.
The current shortage of housing has been created by the Govt (via banking crisis and lack of apprenticeships) and is very difficult to fix so, demand will remain > supply for the foreseeable. What other sector can say that about their product.
So if tw made wheelbarrows but had the same fundamentals, would you agree a Per of 25 was reasonable?
Imho While building was cyclical (last century), they deserved their low Per's, but the banking crisis has made them far stronger (cos of demand for product). So if Per ever reached 25, I would argue it should be 35 cos of the advantage they have over all other sectors.
Back to the real world. I hope the market is realising they need to revalue builders, and in the process of doing this. You mentioned a target of 250 to 270, but if a revaluation in progress they could go a lot higher.
Good talking to you and BoL
If the per was 25 I assume the dividend would be a thinly covered 3.5%. I wouldn’t see this as attractive investment. It would have lost the reasons for investing in the first place.
I recently went into Unilever at a per of 21. This was a huge U turn in my normal strategy but I figured it was good to add a defensive share to my investments and I can only see one direction of travel for profits with there international exposure and almost direct correlation to world population growth. I couldn’t make the same case if a house builder was at a 20 plus per.
The supply/demand argument is strong but if interest rates were higher and banks wouldn’t lend as much then demand would be unfulfilled unless prices came down which they may well do (not soon but sooner than the 100 years you mention)
Don’t get me wrong. I still think TW is undervalued but just by considerably less than you do.
Hi Skeletor
Building is no longer cyclical. Besides banking crisis (100 year cycle) there hasn't been a slump this century.
"Economic downturn, or change in demand (decreased foreign purchasers or end of help to buy)" do not affect supply / demand. I think the number of foreign purchases outside London are too small to have any significant affect, one of the reasons I avoid Lse builders.
"Change in interest rates", controlled by BofE now and not going to increase any time soon.
"Stricter regulations" ?
Do you not agree a Per of 25 is justified by the fundamentals?
BoL
Hi Nige
I am a fairly regular reader of this board and agree that TW has been inexplicably undervalued. I would argue that a PE of 12-13 is probably right and much higher it would become a sell for me.
PEs of 25 aren’t for cyclical companies who rely on major external market forces. The risk that an economic downturn, change in interest rates, stricter regulations, or change in demand (decreased foreign purchasers or end of help to buy) will always need to be priced in.
Put it this way... would you by a housebuilder such as TW on a 20 X earnings ratio? I wouldn’t. If you wouldn’t then assume many others wouldn’t... which is why it won’t get there.
Meanwhile I’m enjoying the rise and would love to hit my exit price of 250-270.
Good luck.
Thanks Graham
Some time ago terrace suggested the price should be 241 given a Per of 12.
I said given a return to PreBrexit levels (Per 13.2) Sp would be 285.
But given the fundamentals (Margin, Divis, EpsG, Cash Held...) I would suggest a Per of at least 25 is justified inferring Sp should be 500+, so still a long way to go!
The market has been predicting a slump in builders fortunes for years (particularly after Brexit vote) but all (non LSE) builders have been steadily increasing EPS for the last 10 years. What more proof does the market need?
The recent increase in Sp is encouraging, the reason for it is more interesting - I imagine some sort of combination of GE, Brexit... none of which affect builders at all. Or, the market is realising that builders are totally undervalued.
Whatever, I hope this trend continues, but one thing is for sure, its going to take a long time.
BoL
Hi troublesome
How many did though? My only gain of that sort of magnitude is Breedon Group, which I bought in November at 58p and I'm now up 54%. That makes up for the losses I've had dabbling in speculative shares in the past!
Anyone who started investing here around beginning of Oct would be sitting on a 50% + increase ATM.
i.e. in less than 4 months - can't be bad !!
ATB
Hi rogue
I'm in the same positon as you the sentiment towards the builders has changed brexit out the way GE good result this could go up more after results in Feb Nige has always said that builders were undervalued looks like he was spot on
Another solid rise today.
It's remarkable to think that just over a year ago I was down as much as 32% on my original investment in TW. Fast forward 11 months and I'm up 39% on my original stake. It just goes to show, particularly with the FTSE 100, that if you concentrate on the fundamentals and ignore the daily background noise, you will generally do fine.