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I haven’t posted for a while on here, but answering the question over the land price per plot...
Thanks for that, Ben.
East mids that should read
I haven’t posted for a while on here, but answering the question over the land price per plot!
I would put that down to quantity, round here (east kids) persimmons seem to be buying large site’s 1000+ plots (10 year site’s) so I would imagine the plot costs would be a lot less than a 100+ site.
That is why I presumed TW done that raise, you won’t see the benefit for a few years, but if that’s the plan it’s good!
As for timber frame I haven’t been on a site with them for years, ( wilcon was the last one) persimmons tried to do there own brick to save money, but I believe that was a bit of a disaster.
Anyway if this is of any interest the main man who walked (or pushed) from persimmons is at avant homes .
The talk on site is it might be floated in the near future!
I hope some of this helps.
Anyway good luck all and happy trading
Hi not sure if this is what your asking but Persimmon now primarily build timber frame houses and have heard they own the co supplying the timber frames. I would guess this is why their plot costs are so much lower than Bellways who usually use traditional brick and block builds.
Strictly, there would be many factors to consider in land purchase costs.
Different areas different parts of the country would have different land prices, eg. you would not expect to pay the same price per plot in say Derby as in Weybridge.
Size of plots and build density allowed per plot would also be a factor, as would be plot size and the type of house built on it. A 2 bed semi would not have the same land cost as a 5 bed house.
The cost of infrastructure to the site also has an effect, how much are road costs, electricity/water/telephone etc connection charges, surface water drainage, sewerage disposal etc.
Build costs will also vary in different areas of the country.
Every site/plot will be different, I would not spend too much time worrying about the disparity,
there are endless variables to be taken into account.
"Also, as pointed out on this thread, PSN have by far the best operating margin of the major builders. This is because their strategy is to carry a little land as possible, and purchase it as required on a just in time basis. They operate an asset light strategy and target the low cost first time buyer segment. The market perceives this as as superior. "
Wigan (and anyone else who may have some information to provide for this..?),
I've just been having a look at this in respect of Persimmon...
As compared to Bellway, based on (In Persimmon's case, 2019 accounts but 2021 for Bellway) they both carry about six years' stock of building plots.
However, the big difference, which I admit surprised me as I don't follow Persimmon closely given that I'm a fair way from being interested in holding their shares, is that Persimmon's average plot cost seems to be £31k against Bellway's £46k.
That's quite a difference, 32% less than Bellway's and, of itself, would seem to go a long way in explaining Persimmon's significantly superior return on equity..?
However, having made a couple of different Google searches, I couldn't really find out the underlying reason, though I did come up with this article which asserts that Persimmon essentially nicked 30% of the agreed land plot on a particular house sale...
However, even if that particular assertion of sharp practice was correct, I'm not imagining that even Persimmon have the cojones to be doing that as standard operating procedure, so I'm still no further forward in understanding the reason for the big cost disparity in the costs per land plot between Persimmon and Bellway...?
If any readers here ~ and I'm aware that there are several working in the trade who comment here from time to time ~ can shed any light on this it would be much appreciated....
A potential concern for Persimmon shareholders must surely be whether Persimmon's plot costs are likely to revert to the industry average over time...?
If so, their margins and return on equity are likely to follow....?
And, if that occurs, one could imagine that the price to book value ~ currently more than twice that of Bellway and Redrow's ~ would also likely drift down in due course.
And, currently being at a PBV of nearly 2.7, that's potentially a long way to fall, relatively (and it's price changes for builders' share relative to each other that interest me, as I typically remain fully invested and, as the name implies, solely in this sector).
Interesting heavy buying by algo started at 1600.Continued to drive the SP upwards. Closing auction sold 16M at a penny cheaper that last trades before closing. Unusual, at least someone is supporting Wimps ...
Just for clarity, I’m a long term Wimps holder ( purchased core holding around eleven years ago). I also regularly trade Wimps via SB , which proves rewarding if you have patience to exploit the regular swings.
As for a quality builder, Redrow would be my choice. Their developments are usually a step above the other listed builders.
"Also, as pointed out on this thread, PSN have by far the best operating margin of the major builders. This is because their strategy is to carry a little land as possible, and purchase it as required on a just in time basis. They operate an asset light strategy and target the low cost first time buyer segment. The market perceives this as superior. "
Wigan, thanks for those details on Persimmon and Taylor Wimps and, yes, Persimmon's return (you look at operating margin and I look at return on equity) has been bordering on awesome over the now fairly long term.
To compare with Redrow rather than Taylor Wimps (as I'm certainly not looking to make a case for the latter, even though this is a TW. thread, as I haven't held their shares for some years now) Persimmon's average ROE from 2013 to 2021 has been 24% compared to Redrow's 19%.
So, that's quite a gap.
However, Persimmon's very big percentage returns to investors via dividends has two disadvantages:
Firstly, because they paid out 73% of earnings in dividends they only achieved asset growth of 83% since 2013 compared to Redrow's asset growth of 252%.
So, to expand on the implication of this, imagining that each company started 2013 with 100p book value per share, Persimmon's BVPS would now be 183p, upon which their past average ROE of 24% would mean they make 44p EPS for 2022.
Whereas Redrow's BVPS would have increased from 100p to 352p, upon which their past average ROE of 19% would mean they make 67p EPS for 2022.
The other problem with paying out big dividends for Persimmon is as follows:
If you take scribblers' projected figures for end of 2021, being EPS of 247p and dividend of 236p, by my reckoning, Persimmon's book value per share at that point would be 1,057p.
So, that dividend would represent a payout on net asset of 22%, which, for a house builder, is stellar.
However, unfortunately, Persimmon's price to book value is also stellar, at currently 2.65.
The problem this creates for shareholders is that it reduces the dividend yield to 8.4%.
And the only additional underlying comfort for shareholders, based on the scribblers’ figures, would be a measly 11p of added book value, i.e. about a further 1%.
I’m not a Persimmon shareholder, but, if I was, I might be wondering what might happen to the price if Persimmon stumble, for example if the first time buyer market runs into trouble..?
Because, from a PBV of 2.65 back to the average PBV of the other builders, that’s a long way to fall.
In no way am I making any predictions here, but this is one concern that keeps me clear of Persimmon’s shares.
Well, PBV was always used as a benchmark metric to compare and “value” builders in the bad old days when they used to load up on debt to buy land, build out developments completely and then try to sell them as they move on to the next development.
Today, I think operating margin is a better measure given the current operating practices, which leads to better WIP management and consequently improved FCF
These days builders in general operate on a much more sensible build to order basis, we’re they are able to quickly adjust actual product for sale with market demand. This way they don’t get caught with too much unsaleable stock if market demand falls. Of course some are better than others at this.
Also, as pointed out on this thread, PSN have by far the best operating margin of the major builders. This is because their strategy is to carry a little land as possible, and purchase it as required on a just in time basis. They operate an asset light strategy and target the low cost first time buyer segment. The market perceives this as as superior.
Wimps, on the other hand has the largest strategic land bank of the major builders, providing more certainty for forward earnings. These means that PSN is able to turn the best metrics whilst land is cheap and plentiful, but run the risk of not being able to acquire land at a profitable price, if land becomes scarce. Of course Wimps runs the risk of holding too much land which may need to be written down if the housing market slumps badly.
My final comment relates to special dividends. COVID provided many businesses with a timely excuse to stop paying specials, as they had been over generous and their balance sheets were beginning to look stressed.
Personally, I would prefer that any special shareholder distribution should be a balance of dividends and, or buybacks depending on the situation prevailing. Of course, IMHO.
As the subject says, this is indeed all food for thought! Thanks for your comments guys, looks like I need to do more research. I agree with comments about getting rid of the special dividend, I don't think it's really in anyone's interest. I would hope, though, that the "normal" dividend would be lifted by way of compensation. As regards dividend seekers going elsewhere, this one hasn't! TW. is still paying c. 5% dividend without the special, I know there are others out there paying more but it's a decent return with, for me, the prospect of capital growth still once the newly-acquired landbank begins converting to new plots. So I'll be holding, but that won't stop me looking to add another builder or two if there are better opportunities out there. Thanks again for the posts. K
"CRST share price has underperformed as you mention but they were overpriced on the basis of a crazy dividend policy which has now been corrected. And the market has overreacted on the downside. Just an opinion."
Ahhh, predictions.... dangerous game, that...! :-)
For me, Crest is still too expensive... and I appreciate that, like you, Cyberduck is on the other side of that one...
I have Crest on a prospective ROE 10% to 12% for the next three years, against Bellway 14% to 15% and Redrow 16% to 17%.
And given Crest's recent penchant for overstating performance, I'm hoping that a minus 20% book value weighting for them as against both Bellway and Redrow will prove sufficient bordering on slightly over-cautious.
And Bellway's projected ROE is a little behind Redrow, but then they earn brownie points in other respects as we have discussed elsewhere...
Seekers of dividends, and seekers of perceived best value.... hmmmmm.... two different tribes, I reckon...? :-)
And I'm looking forward to reading the fruits of your homework elsewhere in due course...
Strictly, I'm happy that I didn't disappoint you - you can read me like a book.
You mention CRST. Of the housebuilders you follow they have the best (lowest) PBV - other than INL. I know you weight CRST adversely to BWY, RDW etc. I'm just mentioning the numers as they are right now without weightings, which can change from month to month, for all to see.
CRST share price has underperformed as you mention but they were overpriced on the basis of a crazy dividend policy which has now been corrected. And the market has overreacted on the downside. Just an opinion.
Maybe TW will come out next year with a bullish statement about the future, and build on the 'more significant outlet driven growth in 2023' mentioned in the trading statement, and drop the special div. That's the best business outcome, and maybe the SP won't suffer the same as CRST did, as the SP has hardly been racing away - even worse than CRST this year. Maybe the 'seekers of dividends' have already moved on.
I'm pretty much a 100% rear view mirror investor and am a fully paid up subscriber to the notion of the four most dangerous words in investing being "it's different this time".
And I appreciate that most would see my investing strategy as a risky one but, funnily enough, I truly consider myself to be the most wussy investor out there and based on the numbers I find all other sectors apart from house builders to be either too scary or they seriously under-perform house builders in terms of underlying progress.
If you've come across Vlad's postings here, you might be aware he has a yardstick he terms "shareholder surplus" and, as I understand it, he comes up with the same calculation as I have done in my earlier post today although I don't think he is anywhere near as anal as me in terms of scratching at the numbers 'till my fingers bleed...! :-)
I consider myself to be a seeker of best perceived value, and part of that is being happy to let go of short and medium term market outcomes.
However, IMO, both value and opportunity are like beauty ~ in that they are in the eye of the beholder... hence the word "perceived".
Part of how this has worked for me for the past two decades is being prepared to move around between different house builder shares on small perceived value gaps.
This, IMO, is much more straightforward to assess and to do given that I am only working with the one sector.
And that is helpful to me because apart from being an investing wuss I'm also quite lazy ~ so I can give my time to just trying to understand the one sector rather than attempt to be an all-knowing jack-of-all-trades.
And anyway, the rear view mirror approach allows me to not be too fazed by wherever interest rates may go... my fear is the opposite, actually, that we are at risk of rampant inflation but that fiat currencies world wide have painted themselves into the corner of huge government borrowings and the best long way out for them is financial repression, and this ~ as far as I understand ~ is how the nation successfully dug itself out of WW2 debt?
Certainly better than government default if you happen to be holding gilts (I've got some of those, index linked, as plan B)
If it ain't broke, don't fix it...?
Anyway, that's going off the point somewhat… ??
The bottom line for me is, taking Bellway for instance as my benchmark share, its shares can currently be bought for just 15% above the cost of its tangible assets.
And those assets are building plots in Blighty (you can almost hear me humming Rule Britannia, can't you?), I mean, I could think of plenty worse things to tie one's money up in... :-)
An interesting strategy strictly, and not one I'd be brave enough to follow. What will happen if, as seems likely with wages and costs increasing month on month but productivity falling, interest rates start ticking up? Do you think some builders will be less affected than others or, like me, that they'll all take a hit? Obviously I'm a long-term holder here myself (I hold other builders indirectly) and am prepared to take that risk with my free-carried shares, however I wouldn't want to limit myself to one sector or even one country. It sounds like you've done extremely well so far though, so what to I know?? Best of luck. K
If you read my blog comment from last night, my comment below is largely a reiteration of that.
And included in that was a mention that someone was likely to pull me on that it is a long time period, and that some might see that as being less useful...
Funnily enough, I was thinking of you when Iwrote that....! :-)
I haven't done the most recent four or five year trend, maybe that's something I'll get round to, but what I've done already was enough number crunching for one week, I reckon...
On your other point, I suppose we have Crest to potentially point the way...?
They seem to have extracted themselves from the high dividends corner that they'd painted themselves into ~ I suppose that's a reflection of a new boss now running the show ~ and our pals, Sid & Doris, have given them a bit of a kicking for it thus far as their share price is only up 3% for the year against Redrow's 15% and Bellway's 8%.
For my money, Crest are still too expensive against Bellway, though the gap has closed and if that trend continues they may get there soon.
Taylor Wimps, though, are way too expensive currently for the likes of me ~ more than 40% over-priced against Bellway by my reckoning...?
Hence I'm not currently holding any, whereas I do have a lot of Bellway.
Interesting calculations Strictly. If you looked at the results over a more recent period - say 4 or 5 years - woud you get the same result? Can you use this data to show trends that will highlight improving / worsening performances within the house builders you follow?
TW will be interesting to watch. I've no idea of course, but I'm in the camp that says they will do their best to halt the special dividends after the nonsense of having to raise money in the middle of last year to purchase land. How will the share price react to that?
Zac & Krusty,
You seem to have opened up an interesting conversation here, so I thought I would add a few points...
I've been investing solely in house builders for the past twenty years, as the name implies, but I have maintained much better record keeping of statistics and numbers since the start of 2013.
I currently track eight house builders, that's BWY (my benchmark share), BVS, BDEV, CRST, INL, PSN, RDW & TW.
I've just updated my figures so as to have a comparison of these against each other based on underlying progress made since the start of 2013, including dividends re-invested at the price as it was on the day paid each time (so sorting that is a bit of a mission ~ it requires calculating all the fractions of shares to be bought with each div paid in each case).
Anyway, Redrow are top, at 329%.
Whereas Taylor Wimps come in at second to last, on 184%.
It's not that they particularly under-performed trading-wise, it's more that, like PSN, they paid out too much in dividend, which hurts according to how high the PBV is...
In PSN's case, that's a lot... they have, by some margin, the best return on equity of all, but then they paid out so much in dividend at such a high PBV that they only come fifth in this league, on 201%.
So, Taylor Wimps are okay, but no cigar.
The other thing to bear in mind is the movement of the PBV, of which obviously the price is one of the two components.
While the PBVs for each house builder can, and do, fluctuate fairly significantly from time to time, given the cyclical nature of the game, they do all tend to average out at around 1.4 to 1.5 over the long term.
Persimmon is currently way above this, at 2.7, which is pretty much uncharted territory for house builders, but this is almost certainly a direct consequence of their very big divs paid out which, IMO, has distorted some investors' thinking because some people, I'm convinced, don't play out the numbers on a spreadsheet as would be prudent to do if they're investing their hard earned cash.
Right now, Taylor Wimps is on a PBV of 1.3, i.e. a bit below the long term average.
By contrast, Redrow, the star performer of the sector on the above basis, is only on 1.2.
So, while I do appreciate that there is some frustration expressed here from time to time about the lack of share price progress, one could argue that, if the market is having a downer on one of them, it's Redrow, not Taylor Wimps, because in the case of the latter it is allocating a higher PBV for a lower performer.
Anyway, I'm happy to flesh out a few of these numbers if anyone wants them...?
Sound advice zac. I'm invested here (I appreciate I was very fortunate to get in early) and also in Fundsmith Equity and MRCH. All have performed well for me, and made up for some terrible decisions I made earlier in my investing career with junior oilies, diamond miners and various other "get rich quick" disasters - we live and learn! For me, your excellent post highlights the need to diversify and spread the risk in your portfolio, whether your immediate priority is growth or income. There are plenty of good options out there for people prepared to put in the effort and do some research. K
I read with interest some of the comments made under the thread “Dog Share”. There’s no right or wrong decision, just different outcomes from decisions made.
I held TW for a number of years and finally sold out in June 2020 at around £1.60 per share. That represented a 15% loss of capital for me. Although, this loss was somewhat offset by the dividends I’d received over the years.
This, sort of, brings me to my point. Whilst we’re all looking to make a profit, whether you’re sitting on a loss or profit should not come into your future thinking. The value of your holding is what it is today. The question you really need to ask yourself is what total return do I expect this investment to make over a future period? If you’re happy with the answer then continue to hold. If not, then move on. That’s provided you have identified a better holding to move on to of course! Simply continuing to hold whilst waiting to regain your losses is not a good strategy. If markets are rising and your holding here is stagnating then, as far as I’m concerned, that’s costing you money. But that’s only my opinion.
So, my decision was clear. At £1.60 the share price had recovered by about 60% from its low point early April 2020. The dividend had been cut. I wasn’t comfortable holding a single, highly cyclical, share given the market conditions. So, I sold. I decided to spread my risk.
I invested half in a managed global equity fund, Fundsmith, and half in a dividend paying UK investment trust, Merchants Trust. The results? My holding here would have lost a further 3.8% capital value (not sure of dividend). My holding in Fundsmith has grown by about 32.0%. My holding in The Merchants Trust has delivered 30.7% capital growth plus about 9.0% in dividend payments over the period.
Selling at a loss doesn’t come into my thinking. Good luck!