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Trading update...steady as she goes with margins guided to moderate towards more normal levels and some cost pressures.
todays sp action looks unconvincing ahead of the trading update. hope there are no nasty surprises!!
hi terr
board much quieter than TEF was.
All the builders have had a correction upwards we were expecting. I think it has a bit more to run before the long haul up based on hard improved earnings and volume. Even TW finally has volumes at pre peak levels (minus the Spanish division) so volume growth for sector will be slower now.
I am still 1/3rd into UK builders with bellway my lead but slowly pivoting to two trusts that hold technology stock. GROW for UK/EU start ups and Polar Capital for global larger tech firms. I think the two of them can average 15 to 20% growth for 10 years which I don't think a basket of UK builders can do. TEF could but it's gone. Rankles that this correction occurred after TEF sold out. We would have had an SP nicely north of 4 quid without the fire sale price forced on us of 3.50. At least those of us who pivoted out of TEF when we were forced to and into other UK builders got 25 to 40% for our trouble.
I worry that Boris' EU sabre rattling means we will have anouther trade cliff edge to deal after the summer and this sector correction upwards might evaporate. Might all be just negotiation tactics but it will hurt confidence which has returned somewhat and thus maybe reverse a bit our sector correction upwards.
I don't like such large exposure to GROW and feel I am dependent of valuations of the asset base I really can't check in any way. Still as my goal is 20% capital growth over a 10 year period it is the best fit I can find. I'm willing to take risk to get that. Choice gets wider under 20%.
Results from BDEV and RDW on Wednesday may show more details of forward expectations.
Wise words
I’ve dug as much as I can about some of the underlying companies and am pretty comfortable.
Woodward obviously bringing all down a bit so room for arbitrage if grow valuations solid. I can’t see incentive for exaggerated valuations as they have consistently exceeded target. Better to then err on the conservative side and have a bit of a buffer I think.
I’ll go to agm and ask some awkward questions but for now heavy invested in grow as a better growth share than builders right now.
Wish me luck.
Hi terrace
That could be a political move so when they release results it infers didn't we do well. Still see no reason for decreasing margins.
Bdev releasing IntRes in a few days (05/02/20, I think), which I expect will be very good. We'll see if their margins decreasing.
BoL
Nigel
Bellway have recently notified the market that margins will revert to more normal levels.
Hi terrace
When Builders subject to the whims of Govt (re Interest rates) they were cyclical and risky, so deserved their low Per's then, but this is no longer the case. I see no reason for declining margins cos, as you say, nothing much is going to change. The one risk you identify is politics, but this does not affect the 3 crucial factors for builders, Mortgage availability, Interest Rates, and Supply / Demand. So I remain optimistic.
BoL
The market has valued homebuilders on a very low basis for decades it is not a recent occurrence
Difficult to see that changing in the future.expect to see margins gently retreat from the high levels achieved in recent years but still very sensible earnings
Cheap mortgages.good demand.realistic land prices.HTB.low debt .moderating labour and material cost inflation.all supportive.Macro international situation both economic and political somewhat difficult though
Hi terrace
The market still holds many misconceptions about builders.
Primarily they are cyclical. Used to be the case when Govt controlled Interest rates but not any more. Besides Banking crisis (once every 100 years) there hasn't been a slump this century.
Builders are risky. No company with 20% margins, loads of cash and a shortage of their product is risky. Used to be when low margins and massive debt, but simply not the case any more.
I could go on, H2B, Brexit... have absolutely no affect on Supply / Demand.
Bwy value £130+ but not going to happen any time soon cos the Market is stupid.
BoL
That has been the case for quite a long time but I was wondering why that should be
Hi terrace
Cos they are massively undervalued. Should be about 3 * current price, cos fundamentals far better than average Ftse 100 companys. Same applies to other big builders (outside LSE).
BoL
Why is Bellway trading at half the P/E of the average ftse 100 company?.
PS
Terrace,
I just saw your comment on Wimps chat.... might be stony ground for you there...?
Strictly
Terrace,
It’s all Ghost Dog & Inland for me right now, plus waiting on h1 from Redrow to see if I ‘m going to rehabilitate them back to a nought percent weighting?
Strictly
Hi Strictly
Using your pbv evaluation what are the top 5 homebuilders to hold right now and in what proportion.
Based on Taylor Wimps' trading update this morning, I'm more than happy that I'm not holding any of their shares - it seems to me that they've really painted themselves into a corner with the humongous dividends they've been paying out, and look set to keep paying out, in a time of gently sliding margins...?
It seems to me that the price to be paid in return for keeping all the investors - all the ones who think big divs are a good idea, at any rate - happy, and who, it seems, are consequently keeping the share price so high relative to the perceived value to be found elsewhere in the sector, is likely to be pretty much zero growth during a period of some years where the return on equity has been nudging around 20% and may still stay up fairly well for at least the next year or two...
And this for a company that really has been the bad boy of the sector for any really long term investor (I mean, for long suffering, patient folk who have been holding this one since pre-2008...).
So, it seems to me that the likely upshot, as things stand, is a single digit annual gain from Taylor Wimps' share prices - if the PBV remains fairly constant, of course - compared to a likely double digit gain from other house builders who are only whacking out about a third of earnings in divs...?
I could, of course, be well wrong on this but, in the meantime, this definitely ain't one for me, Gunga Din...!
Strictly
Hi James
I see no reason why Builders results should not equal last years results. Per's have increased a bit from Jan to Dec, but hoping they will increase a bit more by next Dec. Of Course cannot maintain 45% inc in Sp when Eps growth is only about 10%, but since I consider Builders are worth about double their current MrktCap, still a long was to go.
I congratulate Strictly on his excellent system and would like to join the Blog as soon as I have sorted my system.
I wish you all the very best for 2020 and Strictly and all on his Blog.
Hello Nige.
If house builders deliver as a group in anything like the 2019 performances then I guess we will do well, whatever system we employ (within reason).
I am not a chartist, but a number of features are obviously relevant to other main stream investment strategies. It was through the LSE share chat site (for TEF, RIP), that I first started to look in more detail at the system that Strictly employs and with which he has had so much success over many years. That led me to sign up to his blog when I was invited to do so and I can thoroughly recommend it.
All the best for 2020,
James
Nige,
I still think it comes down to a simple but profound difference between our respective ways of investing, even if we are both pursuing the same outcome in the same sector, i.e. to outperform the house building sector by moving around between different companies' shares within it.
And that difference is that I am happy to continually pursue best perceived value and let that just take its course, whereas you seem to be trying to anticipate market movements to some degree..?
I'm not suggesting that that can't be done, only that I'm pretty sure that I'm not capable of doing it.
So I stick with my particular version of the game, which has yielded me an additional 7% or so a year for the past 7 years - even if I did make a bit of a c.ck up with last year's performance...!
Strictly
Hi Strictly
I started investing again in 2013 and have been developing my system since then.
I still have investments in other companies (now just 1 Nanoco) and have never made a performance analysis of my system.
The point is it not fixed. One example I gave below was tw. Great PreFins last year does not mean good PreFins this year, in fact as I said I have no float there at the moment.
Reason is poor Interims, due to quality problems. Same applies to Psn (but I do have a small float there for Divi).
Everything messed up by Brexit, and at one point I started chasing Divis (due to the frustration of wild swings in prices) and sold some psn and tw at a loss, just to get the float back.
Also If I was to maximise profit I would have all float in one company but prefer to spread float over 2, 3 (preferably) or even 4 companies.
Result - Even if I did analyse my performance, fairly meaningless cos I didn't follow my system.
My estimate of 20% better than LTBH is based on creating a plan, and seeing how it works for different years. Of course this is retrospective, but on several plans created I find it quite easy to make 20%.
Thought about increasing Held Float (Cash) to counter Brexit slumps, but have decided to ignore that for now - maybe will do it 2nd half of year as deadline approaches.
Still going to be plagued bt Brexit (for another Year), and I think once that is out of the way my system will work better.
Per's have increased since the election, but I think still unreasonably low and could double when the market revalues Builders.
For my 5 Companies when 04/01/13 = 100, I have at 27/12/19:
Rdw 444.7, Bwy 350.1, Psn 331.3, Bdev 330.1 & Tw 263.5
Last Year 04/01/19 = 100, I have at 27/12/19:
Bdev 157.4, Rdw 151.2, Bwy 145.0, Tw 138.6 & Psn 132.1
In process of creating Plans for Bkgh, Gle, Csp, Crst & Bvs
BoL
Funny enough tried to get on the other day but the wordpress link has disappeared from my emails . Can you email it to me again ,Certainly need to get up to speed !!!
......................
Sain,
I've just emailed a link to you so, if you have any problems with that, just email me back directly.
Strictly
"For companies in table av inc 44.9%. By moving a float between them (at best times) I still think I can make at least 20% more than that i.e. 65% + with Divs on top of that."
..............................
Nige,
You've given that impressive statistic previously and, as I've said previously, it isn't one that I anticipate being able to anywhere near match...
However, as, to the best of my knowledge, you've had your system up and running for at least a year or two now, perhaps it would be useful to give an idea of how well it has worked in practice as well as how well you reckon it's going to work in theory...?
If that's information you'd be happy to share, I'd be very interested to see it...
Yes, if I'd simply held Barratt all through the year then, by my figures, that would have been a 62.5% gain on share price (on my year's figures - which were from 28/12/18 to 3/1/20) plus divs re-invested so nudging 70% all in compared to my rather pedestrian performance of 57.4%.
Given my relative under-performance, it was my worst year since I started keeping accurate records on this at the beginning of 2013.
However, a few considerations.
Firstly, yes, Barratt were best in class on market performance but, no, I didn't hold any at any point throughout 2019 because at no point were they perceived best value, IMO - the PBV start of year was 1.25 rising to 1.82 by the end of year compared to Bellway, to whom I give a better book value weighting, went from 1.17 to 1.57.
Secondly, I took a real spin on the skidpan that was Telford in 2019, without which my investing gain would probably have been around 8% to 10% better for the year...
Such is life....
Thirdly, a poor year is a poor year, but it doesn't necessarily make for a poor overall investing strategy over the longer term.
I can't give you the "including dividends reinvested" figure for Barratt (because they've never been in "the zone" for me during that time so I don't keep sufficiently detailed records on them), but their share price gain since the start of 2013 is 269% - which is very close to Bellway's which is 272% and, with divs reinvested, Bellway is 362%.
And my overall gain over that time is 580%, and while obviously this wouldn't stand up against the huge compounding impact of the additional 20% a year gain to which you refer, it does amount to an average 7% a year out-performance which I am not entirely displeased about.
As I suggested previously here, although you and I seem to be in essentially the same game - that of moving around between house builder shares to further increase gains in what I think we agree is an already brilliant sector - my approach is based purely on perceived value with zero concern about what that madman Mr Market might do next..!
Strictly
Funny enough tried to get on the other day but the wordpress link has disappeared from my emails . Can you email it to me again ,Certainly need to get up to speed !!!
TEF ticked all the boxes for me because of its transparency allowing you to appraise the individual devleopments and their merits or otherwise . Huge interest factor also which perhaps is not the best investment strategy !
Hi cyberduck
No large sample stats, but that is the point of my system (to identify the surges / slumps).
My original idea was watch Sp movement before / after RNS's. One that stands out in particular is Rdw. They only produce about 2 RNS's per year, IntRes (about 24/01/20) and FinRes (01/09/20).
Almost always a surge in Sp after both (but particularly Fin Res) - Buy about 5 weeks before, then sell 1 or 2 weeks after.
Check out last 5 years Sp movement between those dates.
I have a 5 year plan for each company displaying Relative Strength by Date, and a comparative plan of Relative Price and Relative Stregth by date for last 8, 5, 3, 2 and each year showing all my 5 companies.
This combined with my planner (which recalcs results of different investment plans, Historically), produces my investment plan.
But most importantly, keep up with developments, cos this is only a guide. For instance Last year surge in tw after PreFins, (this year possibly tomorrow) but slump after PreInts (due to quality problems).
I have no Float in tw now cos don't think they will be great (cos of quality and / or weather).
Can't do anything about Politics / Media / Brexit, so basically I ignore them.
BoL