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PS
It seems the moderating filter here means that I'm not allowed to name the north London rivals of the Spuds...?
Or their past manager's first name....?
Strictly
Krusty et al,
As I suspect there might just be a teensy element of wind-up going on here (well, lejjb certainly seems to have provoked some responses, at any rate…), I thought it might be useful to apply a bit of salve by way of a few numbers…?
To draw two different comparisons ~ Barratt against Bellway both back in the day, and Barratt back in the day against Barratt now ~ might be mollifying…?
In the housing slump of 1990 to 1991, Barratt’s book value per share dropped from 150p to 95p, whereas Bellway’s increased from 100p to 102p.
No cigar for Barratt, then…?
The team running Barratt back then was replaced/retired (I don’t have the details on that?), and the house-building equivalent of ****ne Wenger arriving at ****nal was brought in, and the new boys took Barratt’s book value per share up to 646p by 2006.
They then retired (as did Wenger) and Barratt brought in the house-builder equivalent of Unai Emery…
This was Mark Clare, who blundered in where angels feared to tread, and bought rival house builder Wilson Bowden using huge borrowings in 2006 (the financial equivalent of hiring a rowing boat just upstream of Niagara), leaving Barratt with balance sheet liabilities of 162% of tangible equity by 2007.
So, they duly went over the metaphorical falls and the upshot was that a combination of leverage, landbank write-downs and an ensuing serious rights issue took BVPS down from 646p in 2006 to 188p in 2011.
Existential doesn’t really describe it, does it..?
Like Unai Emery (or Dick to his friends at ****nal), Mark also left in a changing of the guard at Barratt.
And now, as of the 2022 accounts, Barratt’s BVPS is up to 447p, and liabilities are just 56% of tangible net balance sheet ~ which is less than a third of the percentage from previously and is now fully in keeping with that of the sector ~ which, having been burned by lack of government support through the credit crunch, are now, on the whole, playing it much safer….
So, lejjb may be right ~ though the numbers don’t imply that he is ~ or alternatively he may just be having a chuckle at the expense of some here..?
But, speaking personally, while I do not currently hold any Barratt shares, I remain fully invested in the house-building sector (financially painful though that may have been so far this year…!)
Strictly
lejjb I suggest you take your informal and unproven drivel elsewhere, cliff-edge lol.
lejjb, thanks for the in-depth analysis. Couple of questions from me so I can be clear about your thoughts on this:
How could BDEV buy back their own shares with excess cash if they were in debt?
If the company needed cash to buy more land, surely they would pause the share buyback?
Lejjb. I can see very little debt in the BDEV accounts for last year. Did they increase their loans since then? Am I missing something?
What debt obligations
What debt options?
My informal and unproven enquires also suggest that UK (vs other countries') housebuilders could face a situation worse than 2008, for the following (very different from 2008) reasons:
- rate hikes were faster than what heavily indebted (for good or bad reason) businesses could prepare for. And housebuilders rely a lot on credit as part of their land acquisitions.
- spiraling utility and food bills, together with increasing mortage rates, have made it harder for people to buy new houses.
There is a high risk that UK housebuilders will have to offload their assets at heavily discounted prices if they cannot sustainably match their increasing debt obligations. Combined with low demand for houses due to the inherent lack of affordability, Barratt is at a cliff's edge.
So, the underlying story here is that BDev appears to be taking a cautious approach to the market for the next few years. Also reducing costs, focusing on cash flow and buying back shares at bargain prices. For long investors this all looks like good news.
The situation now, is worse than the situation pre 2008 crash. We haven't even started yet. Debt levels are insane, the amount of leverage mind boggling.
Already the price here is back to what it was in 2004! Getting near a point when even the diehards are going to dump.
US foreclosures:
2008 - 1,332,991
2009 - 1,528,364
2010 - 1,654,634
First 6 months of 2022 - 164,581
It's nothing like 2008!!
hics: "It's worse than 2008."
The hell it is! Based on what metrics? Number of houses sold? Enquiries? Housebuilder profits? Numbers employed in the trades?
Either justify that statement or withdraw it!
extracover 46 is absolutely. right. The. house builders. have. NOT reduced the. numbers of houses they are. building. They are happy to. keep building up. "stock" as they know, an. so should. we (except for the. doom and gloom merchants) that. interest rates will fall next year (but WAGES. won't!) and there will be a renewed and increase. demand. for housing in the. UK. Our biggest enemy as shareholders - is the press. Lighten. up. everyone - the good times will come. again.
It's worse than 2008.
Appears to be based on one bank only Wells Fargo. Plus the 90% down is conveniently being compared to the figures around the time of the release from "lockdown" leading to the post Covid housing boom.
Media relies on selling doom and gloom and journos are notoriously lazy about checking stats and context.
Volume builders in UK are well set if there is a substantial fall-off in demand as their financial situations bear no comparison to 2008.
Sales always dry up this time of year, it's not a new phenomenon as folk start thinking about crimbo. Then come January the market gets going again - ask any estate agent.
Over in the states mortage applications down 90% and house buying conditions ranked as worst in history, UK likely see the same metrics soon.
My brothers a self employed bricky working on a barratts site, he’s just been layed off, they are putting roofs on the ones they have started then mothballing the site, a month back when I saw him he said there was a site meeting saying they didn’t have a single enquiry the week prior at the sites sales office. He’s now panicking about finding work. I remember back in 2008/2009 when I did new build electricity connections, work dried up and sites mothballed up and down the country, maybe history repeating itself or house builders being a bit more cautious preserving cash this time round.
hics, What are you "afraid" of - your own imagination perhaps? The latest reported "slim" margin was a before tax profit of 12% of sales; many businesses would love to have that kind of margin and "rising interest rates" are great when you have over a billion cash in your balance sheet as does Barrat.
Yes, we know you're suggesting a collapse. But the market isn't listening to you. Persimmon update tomorrow is anticipated and will be a great indicator so I'll read that.
this morning
Just looking at all the indicators for the market, looking at what's happening across the pond, looking at rates and mortgage applications. As I say, makes for grim reading.
Markets have these irrational bounces but I feel we are going way lower.
Can't agree with Hics. Extraordinarily negative! And the Share's bounced much higher immediately after. Poor timing, Hics!
Good points
The thing is hics, all that information is already in the public domaine and therefore factored into share prices. It's what happens from here that matters now. It may well be that the news gets worse, the war stretches on, inflation grows, interest rates rise etc. etc. but it might equally go the other way. There's an awful lot of bad news factored into housebuilder shares right now, but they're mainly in very good financial health, unlike in 2008 when they were mired in debt. And they survived that crisis. So, the contrarian view is to buy now, before any good news emerges. Buying low and selling high is, after all, the name of the game here, and what we're all trying to achieve.