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I have sold my shares today too because I am a dividend investor and cutting the dividend (however temporary) for me is a time to move on.
I wish everyone who is holding on to their shares the best of British though.
Thanks for the link Meconopsis, as you say well worth a read. TBH though, the more I read it, the more I wonder if it will work at all. Will Barratt, as the senior partner, try to run Redrow as a volume housebuilder, cutting corners wherever possible, and losing sight of the "premium" USP that Redrow aspire to? Will traditional RDW customers be happy to pay a premium price still, knowing that, in effect, they're buying a Barratt box? We'll have to wait & see. It doesn't look like a marriage made in heaven to me though I'm afraid.
Morning Meconopsis,
For me, I think it’ll be a shrewd move by Bdev, longer term. I consider BWY & RDW to be the better run companies on paper out of the six I follow. Redrow’s figures certainly look better than Bdev’s lately and I can see the logic in the merger myself when things improve. Even at the lower end of 180m pre tax profits for RDW it equates to 54p per share. Having said that I did sell Redrow yesterday, sadly. PSN wise, I’m expecting around £1.10 of pre tax per share, so I guess we shall have to see what their future policy is, maybe 40-60p for the year?I was encouraged by their H2 figures over H1 (+34%) Then there’s the additional tax burden coming in. TW have a slightly different approach of….
Our Ordinary Dividend Policy is to return c. 7.5% of net assets to shareholders annually. As I stated on the LGen board over Christmas, one of the reasons I moved over from Bdev to Wimps, along with their estimated profits for the year (470m, which would give 13.3p per share). Personally, I think TW’s dividend might suffer the least? Looking for a re-entry point here when as and when I see fit
krustysmegma - it's well worth reading the analyst presentation deck at https://investors.redrowplc.co.uk/sites/redrow-ir/files/offer-for-redrow/presentation-recommended-combination-of-barratt-developments-and-redrow.pdf
their argument is:
- cost savings through synergies - half of which look to be low hanging fruit based on the expectation that they'll achieve them within a year
- take redrow brand into scotland and onto more sites - this gives a bigger range of home types and price points on each site
the latter point is an interesting one. where they've had both brands on a single site then they believe that planning permission was easier to obtain and both brands sold homes more quickly. i'm presuming that it's because it reduces the ****genisation of the site.
as i say, the deck is worth a read.
it must be said that if you care about immediate capital value and income then it sucks in the short term.
Agree, interesting analysis & food for thought. I guess everyone has their individual positions and reasons to be invested here. For me it was to diversify from TW. where I am a long-term (2008) holder sitting on significant gains but looking for decent dividend income. I chose BDEV and PSN but my timing was terrible and both have been underwater virtually from the moment I bought them.
Whilst PSN remains a basket case & the yield has dropped dramatically, things were improving for BDEV as both SP and dividend improved. Now the dividend has been slashed and the SP is heading south again. I'm not convinced they will be able to drive the kind of economies of scale that are required to get the yield back to what it was previously, let alone improve it. I appreciate not all investors here are income-seekers, but I suspect the importance of the dividend to investors is much more important than perhaps the Board realised when agreeing this merger.
So, for me personally, I can't take any positives from it I'm afraid. I have yet to decide whether to stick or twist.
Oh yes, thanks for the correction Meconopsis. I don't know how that % sign slipped in there, it should have read 1.75x. Apols also to buller for any confusion, senior moment...
Good post and analysis. Minority views often prove to be correct.
In truth, I don't understand all the negativity here. And the reaction here certainly doesn't reflect the wider analysis in the market, which has broadly
I thought the results showed "steady as she goes" competence by the Board. Yes, profits and the dividend are down, but that's to be expected at this point in the cycle. Cash conserved. Headcount down 10% through a hiring freeze, which controls costs without destroying morale.
We'll have to wait until the end of Feb before we see what PSN and TW do in terms of dividends, but I'd be amazed (and actually distressed) if they don't similarly cut dividends by around 50%.
I think the merger is a shrewd move. Prior to the announcement:
- BDEV had a market capitalisation of £5.5bn against net assets of £5.4bn, of which the land bank is £3bn - so BDEV were trading at par with NAV
- RDW had a market capitalisation of £2bn against net assets of £2.9bn, of which the land bank is £1.6bn - so RDW were trading at a 30% discount to NAV
By proposing a merger with Redrow and making the offer all share the Board is calling the bottom of the market cycle. Rather than taking over a basket case like Crest which will take years to come right; it's proposing to merge with a competitor that it's already worked with, with complimentary market offerings and where co-branded sites have had better sell though than single-brand sites.
The all share nature of the deal preserves capital in the business and we end up with a company with net assets of £8.3bn of which there's £850m of cash and a land bank of £4.6bn. That land bank value is a "bottom of the cycle" valuation - so will improve as the market ticks up.
The immediate downside is that the combined market capitalisation has dropped to Redrow's discount. On the basis that the stock market appeared to trust BDEV's Board over RDW's then I suspect that the discount will get priced out once the merger happens - although still subject to both shareholder votes and Competition and Markets Authority approval. But I'm relaxed about that.
I also realise that I'm in a TINY minority here :)
I would be interested to know the combined land bank of this deal. A sellers market soon.
Some share holders have long memories. That clown Mark Clare buying Wilson Bowden.
They should just stick to building little noddy timber frame houses, and don’t over expose
the business, which this deal will surely do. I managed to get out prior to this announcement.
Thankfully.
This boardroom maneuver makes the ability to invest in this great company like Barratt near impossible now to hold .This purchase brings absolutely no value to me as a share holder. This appears at first glance as early stage empire building with other peoples money. The board work for us and not the other way around. If hes not building value for us then how can i trust him then. I have had to sell. When government ask why no one invests in UK companys it's for these very reasons. Good luck to the folks sticking wth it tho
Does anyone think the final dividend will be reduced the same as the interim……Hopefully not.
This was bad timing by BDEV and Redrow. If they had waited until after the March budget and /or the one in the autumn when pre-election bribes in the way of tax cuts will be the name of the game, the market’s and their shareholders' reaction would have been different. For me its a hold, glass half full and in the longer term still a buy.
See my post of 12 January. The gap between what the market thought about builders and what builders thought about builders was quite a sell sign.
I still think this will drop more looking for 460
Out at over 487p.
I purchased at 396.5p on 19th Oct 2023 so making over a 20% return.
This follows an 11 month hold of the stock between 2016/17 where I took a 40% gain.
You never know I may be back for a third time.
Good luck to BDEV holders - shame about today's disappointment.
Lower until an interest rate cut I suspect. Shock needs to be absorbed to see direction and if it's thought a good strategy, as another poster mentioned, I'd rather have TW.
Placed a speculative trade to try and make a small cap gain of a few hundred to offset dividend loss, would need 500p to make worthwhile. Otherwise will hang until the market improves.
How low will we go . ;-(
@buller...
@Krustysmegma is correct that a lower dividend cover pays out more of the earnings. @Krustysmegma is incorrect is adding a % sign to the dividend cover number - it's a ratio, not a %
So, if Barratt made £100m then dividend cover of:
- 2.5 results in a dividend payout of £40m to shareholders
- 2.25 results in a dividend payout of £44.4m to shareholders
- 2.0 results in a dividend payout of £50m to shareholders
- 1.75 results in a dividend payout of £57.1m to shareholders
Barratt have announced a while ago a plan to reduce dividend cover (i.e. increase capital returns to shareholders) from a dividend policy of 2.5 dividend cover in increments of 0.25. Someone here will be able to remember where they were targeting (I seem to remember 1.5, but I might be wrong).
The reason for the policy was that the company was accumulating more capital than it could usefully deploy.
Doesn't the RDW sp imply Barratt should be trading closer to 470p if there's now an implied pin at 1.44x? Is that spread just a tug of war between the two shares as to whether this is a good merger or bad?
I have over 40% of my portfolio invested in these shares and for a good while now I have thought they were heading for a tumble, managed to get out of some held in an ISA at a profit, but the rest in other accounts remain unless I make a loss! I didn't expect them to do something like this proposed purchase at this period of time and when the profits have been seriously hit, Its all gone Pete Tong!
Nice to see you backing all of that with facts @causal ;)
tw are the best out of all house builders. only gain in the long term. only good thing come out of redrow deal, adds quality to the portfolio. because barratts build ****e. like persimmon. not superized go back early 400s
And guess who are the poor saps that got burnt