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as highlighted in a previous post this appears to show
a very large reduction in profit per plot than just a few years ago?.
In % terms it appears to be a really significant drop.
Is this why the SP has failed to make much progress??...
Sorry - re post below - the page references to the 2020 FS should be pages 159 and 177, and not pages 161 nd 179.
Hi Vlad,
Just following up on my post earlier today on the INL board (the subject of which was really Henry Boot).
I believe that the options and PPAs are included in the assets of the company - page 161 of the FS states that PPAs assets are £151m, while page 179 states that inventories include c.£60m in options and PPAs - please correct me if I am wrong.
While the PPA/Option land bank is increasing in size, it is debatable whether the value is increasing. One could argue that the land bank back in 2016 was potentially worth c. £900m (60k plots at an average profit of £15k as per 2016 FS), and is now potentially worth c. £528m (88k plots at an average profit of £6k as per 2020 FS). Obviously, both of these numbers are huge relative to the market cap but both are only potential and logic suggests that the easiest wins are converted to profit first with the difficult planning cases taking longer and therefore incurring more cost.
I am not saying that BOOT is a poor investment, just not sure that it is a clear winner......
Strictly - let me do some work on some of the sites they've got (or previously sold) and come back to you. The problem with PPA's is that it's a fixed margin (because the land is valued in the present day, not at the point of agreeing and signing the Promotion agreement, with the owner). There are other nuances but let me have a deep delve and come back to you.
I'm guessing, at this stage, the Boot will flip/sell their sites in the majority of cases too. I'll have a look and confirm my thoughts in due course.
Strictly - I don't place Boot ahead of Bellway or LGEN for that matter, but is no 3 out of my 4 current holdings, meaning that I regard Boot as the third best current buying opportunity within the UK stock market. I was listening to Bellway's half year podcast from c6 months ago, in anticipation of their final results in 2 1/2 weeks time. Bellway were buying a lot of cheap land in H1, likely more in H2 and price increases, particularly away from the South East will also be very positive for Bellway.
I spoke to Boot's FD as part of my research, by e-mail, and he confirmed that for the Planning Promotional Agreements, they recover costs plus 15% to 20% of the land sales price to the market once planning obtained.
In terms of the balance sheet, the PPA's don't go onto the balance sheet, just the owned land which is only 12% of the land, plus the money paid to secure option agreements, as well as other operational assets. The PPA's don't go on the balance sheet although they account for the majority of Boot's land holdings, and yet Boot is still on a very attractive price to book, despite its primary resource being off the book. The returns for PPA arrangements may appear lower than for owned land holdings, but are they? PPA's are a fraction of the capital intensity of the owned land bank. Strictly, I can't understand why you cannot see this, Boot has very attractive price to book, but Boot's monster resource is off the balance sheet, you could take away the well over 50k PPA plots and Boot would still be well priced. Vlad
Just for clarity, the post immediately below this is part 2, part 1 is 2 posts below.
My communication with Boot’s FD during my fact finds – nearly all of the above is available in published reports by Boot – was very interesting. Boot clearly have a bold directional strategy going forward which they are currently executing relentlessly. But the business remains cautiously expansive.
My views on the future of land prices in the regions where Boot has its land holdings are optimistic, correct views in all probability, views that I expressed to Boot. Interestingly, my opinion was given short shrift by Boot’s FD who won’t build such optimistic assumptions into their planning or projections. Boot although very clear and expansive in their strategy, are equally focused on downside risks and how they might manage unforeseen downside events.
Henry Boot is in very safe and very capable hands.
I did the following analysis in August, interested in any thoughts, posted in 2 parts, part 1:
Boot’s net assets are currently on the books at a value which is just over 80% of Boot’s current market cap. This is mostly the owned land bank. The owned land is currently only c12% of the land bank, the rest of the land bank is made up of optioned plots (i.e. a paid for option to buy at an agreed price within a certain time frame, usually several years) and planning promotional agreements (PPA’s do not involve the developer in owning the plots at any time, they apply for planning on behalf of the owner for a fixed fee – in the case of Boot’s PPA’s Boot typically charge all of their costs and then 15% to 20% of the final sales value of the land once the planning permission has been obtained).
The majority of Boot’s land bank is based on planning promotional agreements.
Boot is broadly divided into 3 divisions. Land Development, Property Investment and Development and Construction.
The business was obviously impacted last year with a reduction in profits, but all division remained profitable, the balance sheet is still showing plenty of net cash and the business looks like bouncing back to 2019 profits quite quickly. When comparing the profits of the separate operating divisions, I will refer to 2019 figures, as this will likely be far closer to where we are this year than the 2020 figures.
The land development operation produced c54% of the 2019 profit. Owned plots are only c12% of the land bank and yet the net asset base is over 80% of the current market cap. You might want to consider the upside of these figures carefully.
The build up in the total land bank in recent years has been considerable. Currently c90k plots, in 2015 c60k plots ans in 2011 c44k plots.
Such a build up of the land bank obviously impacts the short term return on equity and to a lesser extent upon Boot’s net tangible shareholder surplus. It is for this reason that return on equity is not one of my favoured metrics and the tangible shareholder surplus for Boot – average annual net tangible equity growth added to the dividend, the sum expressed as a percentage of current market cap – is over 9% currently – assuming a fairly prompt return to 2019 dividend levels. A highly attractive metric, particularly as the ongoing build up in the land bank is taking place
The forward profit from that land bank, as Boot continues to grow towards being one of the UK’s primary planing developers for land holdings is going to be sizable. The c90k plots means that Boot’s land bank is 9/10 the size of Persimmon’s, Persimmon having a market cap c26x larger than Boot.
Most of Boot’s plots are in and around the Midlands, ideally located as partial home working and longer but less regular commutes become the new normal. The midlands has not generally experienced the house price bubble of the South East and has some price catching up to do.
Hi mate sorry for late reply don't get notifications haha
Just worry about companies that have negative operating cash flows
Cos it would mean burning cash to pay dividends
Don't understand the increased borrowing have you found a reason for it?
Capex it still really high and may continue to be that way for some time
Not sure I agree with your view on that Babba.
'Gearing levels have increased to 3.8% (30 June 2020: £nil) and remain below our optimal operating range of between 10% and 20% as we cautiously manage our risk levels in a recovering market.'
Finally, our balance sheet remains rock solid and net debt at £13.0m is low so we have capacity to fund our strategic growth ambitions.
'The Company meets its day-to-day working capital requirements through a secured loan facility, which includes an overdraft facility. In January 2020, the Group concluded negotiations with three banking partners to put in place a £75m facility to replace the £72m facility we had in place at 31 December 2019, along with an accordion facility of £30m, which can be called upon at the Group's request.'
I'm not sure my friend cash flow looks a problem
-34 million in Free cash flow
Borrowings maxed out and CapEx skyrocketing
Very good update.
Is it the relative illiquidity of the shares that holds the price back ?
Really ought to be comfortably north of 3 quid.
By Edmond Jackson in II. Good analysis of trading update and encouraging to see director buying of this rather overlooked stock.
Their script writers have done a very good job but there is a noticeable lack of numbers when compared to other housebuilders. These builders have a good reputation in the industry but I'm surprised no mention of cost inflation.
A rather positive trading update today. All divisions doing pretty well.
Tremendous value at current levels IMO.
last week.
Kate, the answer to your first question is yes imv,
on the second it depends on what timeframe.
northern powerhouse beneficiary? or is that already priced in?
Not sure how accurate those are, particularly when you can usually
deal well within the quoted spread.
So 2.90 plus has to wait for now, that being said the statement looked really positive
for the year ahead.
It is and twice as many reported as bought than sold today, yet the sp declines.
Appears a gift to me.
Very good trading update reporting great strategic investments across the 3 divisions. Should attract broker upgrades and positive write up from ST in Investors Chronicle. 300p will soon be seen in the rear view mirror imo
Thorpe, Henry Boot tends to be under the radar, at least to an extent.
12 month high is at 2.90, hopefully we can take that level out.
Trading update on Thursday
Held these for 6 years now and just added again @280p. Seems very little downside and plenty of upside on both house sales, land bank conversions and industrial/logistics investments.
Still below the radar but that will change
Monoraja - I have major holdings in Redrow and Bellway, the best of the conventional house builders if you like, but the more I look at Boot, the more I agree with your assessment. It is not just the tangible surplus - forward divi plus recent year average annual growth in tangible balance sheet equity, the sum expressed as a percentage of market cap - which is c10% of current market cap, i.e. exactly what I am looking for, it is also the land bank. c90,000 plots for a business worth under £400M, it is extraordinary. If you assume 2019 average profits for land sales for the whole land bank, and that includes the cost of taking the plots through the lengthy planning process, the forward profit for the land bank is around £1bn, based on today's likely prices, there is a profit leverage here as increases in land prices do not change the price on the books or the planning process costs proportionately, the forward land bank profits are nearer £1.5bn and rising. Add to that the fact that the land bank is not all the Boot does, even if you gave away all the land for free, the other activities alone would come close to justifying the current valuation. I would go as far as to say that there is no other company within the UK stock exchange offering the likely low risk forward returns of Henry Boot.