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Nige, for anyone managing their own investments, I reckon that it�s worth knowing how you are doing compared to simply buying & holding, and something that has worked for me in this regard is bench-marking against Bellway. Why Bellway? Well, it has a long term track record, going back to 1983; it doesn�t use high gearing, with the consequence that it hasn�t had any nasty altercations with rights issues; it doesn�t buy other companies, so hasn�t accumulated value-destroying intangible assets on its balance sheet; and it has quietly got on with it and if you�d simply invested your moolah in Bellway in 1983 and then just sat back and scratched your bum from there on, then, of all the house builders, that�s where you�d have done the best - blissfully compounding away at around 15% a year. To give you my figures, since the start of 2003 to end of 2016, I�ve beaten Bellway by an average of 3.6% a year � which ain�t much, I know, especially given that I put a fair amount of effort into this investing malarkey. But breaking that down, it does look better more recently. From 2003 to end of 2012, the average improvement is only 0.5%, but for the last five years the average is 11.5%. So there�s a learning curve exposed there, hopefully, and I reckon I�d be delighted to be able to continue at that rate from here - but I think it takes more than five years for the proof of the pudding, and all that. To put some specifics on this, 100p of Bellway at the start of 2003 turns into 770p with dividends re-invested, whereas I�ve taken 100p up to 1,260p over that time, which I�m more than satisfied with overall. So that was all a rather long-winded way of suggesting that even if, as you�ve suggested, your numbers don�t easily provide for you to check your past performance, it might be worth monitoring from here on..? And finally, Nige, if you reckon you could come up with a better company than Bellway to benchmark against, well, I�d be interested to hear of it :-)
Hi Strictly In reply to Part 2. 1St of all it is difficult to make comparisons between long term buy hold, and my method because I have increased my Float by so much. 2nd'ly - I am continually improving my system and made some bad Deals while I was setting it up - like I could not see the Cost Price when computer told me to sell - just did it anyway! This results in my new system where computer tells me when to buy and sell and highlights the hold time in Diary, so I need to manually override this to create the Action Plan and see all prices. 3rd'ly - I will produce a LTBH/MySys comparison when I figure out how to do it. Just done weekly update successfully and in the process of generalizing procs - SNAFU, I'll fix it tomorrow! Your investment strategy. Is absolutely correct, only differnce between you and Josh are details. The difference between me and you & Josh is you look for value, while I look at the share price movement. I am about to include crst into my system - noticed surges at critical dates around 14/04/17 - PreInt RNS, and PreFin RNS around 14/11/17. I think bvs should be avoided (keep on watch until it sorts itself out). Value will eventually be realised - but as you say you might have to wait a while. Disasters always happen. The thing is you must react quickly to the market when things begin to change - Brexit crippled the Builders because the Market totally overreacted. IMHO every builder is now worth almost double their current MktCap or share price. As I said the signs of disaster are decreasing margins and Earnings per Share Growth. Then is the time to get out, to whittle spoons in Alaska or invest in Toilet Rolls! My system means you are 100% invested all of the time with a buffer holding in the 6 builders of minimum of £2k, (bkgh, bdev, rdw, bwy, psn & tw), with a float of £26k which I move (partly) around, about 30 times per year between them. Due to overlaps it means rarely is the full Float in 1 company. Main Point - my system is based on RNS's, not value - go with the flow rather than value, and know when to abandon ship. So sorry you had to sell your house, but congrats on getting back in there. That will have taken a bit of guts - when things went pear shaped for, me I just forgot about it all, believing share prices would eventually recover - they didn't. Older and wiser now, (one thing I' sure is the first, not too sure about the second). BoL
A housebuilding tycoon has donated more than £200million to charity in what is thought to be one of the largest public donations made in the UK. Successful businessman Steve Morgan, who once tried to buy Liverpool Football Club, set up The Morgan Foundation in 2001 to help community groups, in particular those which help children and families in desperate need. He made the donation in the form of 42 million shares from his company, Redrow PLC, representing more than 11% of the shareholding. Shares in the company currently cost 493p, valuing the donation at a staggering £207 million. It is thought the donation is one of the largest ever publicly made by a Brit. Jane Harris, administrator of The Morgan Foundation, said: "Steve Morgan's incredible generosity will mean a huge and profound step-change for The Morgan Foundation. "Our ethos is based on making a difference and Steve's gift of over £200 million means we will be able to help thousands of more people in need. "We can also ramp-up the donation of smiley buses which have made such a positive impact to the disabled and socially isolated in our region. "I'm also delighted to say we are actively planning some very exciting, and significant, capital projects and we'll be announcing more details soon." Mr Morgan, 64, and originally from Liverpool, has a fortune of £880 million, according to The Sunday Times. He founded Redrow in 1974 and is currently chairman of the group. The housebuilder recently announced bumper results. In the six months to December 31, 2016, they turned over a record £739 million and reported a pre-tax profits of £140 million, an increase of 35 per cent. They also announced a dividend of 6p per share. If they report a similar amount in the next six months this will result in a dividend of around £2.5 million. The Morgan Foundation has committed £35 million to causes over the past 16 years.
Hi Strictly Your method depends on spotting good value by detailed analysis of the accounts is an excellent method. As I said I tried to do that with Tech Stocks (Growth) but this could not protect me from the DotCom Bust. History. With Tech Stocks the critical factors are the rate of change of Per, Peg and margins, but this was no protection against the DotCom Bust, just as the Builders disaster caused by the Bankers means good value does not guarantee continuing success. There would have been clear indicators such as decreasing margins, -ve growth ... That is the time to exit. Whether you regard Builders as a growth sector or cyclical is incidental - how long to the next cycle? Btw, had not all our best Tech stocks been sold off when they became cheap during DotCom Bust, Ftse100 would be far higher now than it is. Last to be sold was Arm valued at £15bn but sold for £24bn, which fortunately covered the losses I made on Brexit. When Builders became ridiculously cheap. Trouble is no way of knowing when they will recover. Leads to a simple value calc, previous average per / current per * share price = Real Value per share. As I said I have not updated Pers, pegs etc from company Refs so cannot give you any valuations here. But does it really matter - you could discover Telford is far more undervalued than the rest but if the market disagrees, you are wrong! Reactive Method. Is based on rate of change of share prices (determined by RNS releases). As I said I am investing in psn right now before their Final Results - I don't expect much of a surge in the price on there release because of a highly optomistic PreFinal RNS release (already built into the price) so in it mainly for the divi (around 5%), followed by tw (around 6.5%). Of course I will have to wait for the share price to recover after ExDivDate but according to my graphs should not take more than 2 to 3 weeks. I will have a good look at Telford (Company Refs) and might add it to my watchlist, but as I have said I am reluctant to invest in London/SE builders as I believe this is where the first signs of the market overheating will be seen (which is why I avoid crst). Steve Morgan (the King) returned and transformed the company but did you know a Director resigned (with immediate effect) and Steve said he was not allowed to resign until he was replaced. Maybe not a bad thing and all now is well in the camp. This was 2 or 3 years ago. Builders make up 72% of my port which is more than I would like (too many eggs...) so I need to find some more companies to invest in for which Company Refs is excellent. BoL
Nige, I hadn’t come across Company Refs so have just googled it. I’m imagining that, while it might be useful if you’re scouring across hundreds of companies looking for pointers, I’m only looking at about ten companies, all in the same sector, and, of those, only four are interesting to me currently – that’s Telford, Redrow, Bellway and Crest, and in that order. And I put far more faith in long term track records, which can be obtained from the companies themselves, along with the forward guidance the management give, rather than what the pundits and analysts might have to say – as who knows their real level of competence is or what axes they may have to grind, and also their collective track record for getting it right isn’t impressive. My view on Bovis is that while it might be the cheapest house builder based on price to book, that doesn’t, of itself, make it the best value buy. At the start of 1998, Bovis and Bellway had almost the same BVPS. Bovis was 185p and Bellway slightly less at 183p. Fast forward to end 2016, and Bovis BVPS is now 780p and Bellway is1,522p. During that time, Bovis declared dividends totalling 343p and Bellway 545p (ignoring the timing of payments – insignificant for this exercise), so Bovis only made 938p over the time while Bellway made double that at 1,884p. Over that time, Bovis’s average ROE was 12.2% against Bellway 16.4%, and that is certainly not a trend that has improved for Bovis, rather, it has worsened as, on the most recent accounts, Bovis’s ROE is 14.6% against Bellway which is 25.0%. So clearly Bellway is a better prospect. By how much, well, that’s not so straightforward, is it, and requires a judgement call? Re your next point, yes, Taylor Wimps and Barratt both nearly destroyed themselves through debt come the deluge. Redrow is a slightly different case – the king returned, and hopefully all is now well in that camp? I feel particularly reassured that Steve Morgan takes no salary but owns a shedload of shares so, more than maybe any other head honcho for a FTSE350 company (I don’t know for sure because I haven’t checked) his interests seemed fully aligned with ours as shareholders – which I think is a good thing! I haven’t got to grips with your system yet but I suspect that there is a fundamental difference from what I’m doing in that your method seems to rely on anticipating short term share price movements?
I’m not suggesting that that can’t be done successfully (so perhaps a discussion on investment performance using this at some point might be useful?), only that I am not able to do it. My whole investing strategy is to rely on the notion that, in the end, price follows value - though I might have to wait at least five years for this to happen under some circumstances, as in the credit crunch, and so need to be able to leave those shares in place that long to avoid a good kicking from the market. The other aspect to this is that there is the relationship between a share and its price and then there is also the relationship between a share and the other shares in its sector – and this is where you, Josh and myself seem to be on the same song sheet, though we have different ways of utilising this. I reckon it’s very hard to decide on the real value of a builder’s share in cash terms, and I also reckon that the market only rarely, if ever, takes the price up to full value. There are times when you could cash in with a lot of confidence that the price would fall from there – but that ain’t quite the same thing, is it – and I’ve never had the cojones to do it in the sixteen years I’ve been in this game. I don’t know if you’ve ever graphed a builder’s share price against the underlying book value, but a picture paints a thousand words and it’s surprisingly clear to see that when the book value sneezes, the share price catches double pneumonia. Justified perhaps in the case of highly geared companies like Barrratt, Taylor Wimps as they were at the time but not so in the case of companies like Bellway that always had much more prudent balance sheets. Rather than trying to evaluate a builders’ share in cash terms, for a wussy investor like me it feels safer to try to assess the value against other builders and switch as and when accordingly. I’m more fearful of being out of the market when I should be in than I am of being in the market when I should be out. The reason being is that if I’m out of the market and prices carry on up then how do I go back in? Whereas, if I’m in the market and prices go down, I can simply wait for it to recover. And that, so far, is what I’ve done. In 2008, I had to sell my house and move in order to achieve that but it was the right call at the time, and has proved to have been the right call since, and the share recovery since then has been splendid – as I imagine you’d agree providing you’ve been getting it fairly right in what you were holding at any time?
Hi Stricly Very interesting article. First a bit of History so you can appreciate where I am coming from. I started investing in 1986 - made a lot of money during DotCom Boom (and lost it in DotCom Bust). During this time I refined my investment strategy by buying Company Refs and looking for value in Tech Stocks. It worked well until everything collapsed. I still get Company Refs but have found that it is more difficult to compare Building Companies, because their performance mirror each other. Bvs looks best value but that is because they have worst -ve sentiment. They have the worst management - have a quick look at bvs board - nothing but trouble! Psn and bkg look worst value, but they have the most cash and unlike tw, bdev and rdw, were never in danger of going bust during the Banking crisis, so are looked upon more favorably than the others. Just leaves bwy, few -ve's many +ve's. Conclusion. On plotting 5 Year History on 1 graph for each company (start date 1st YEnd Date) II noticed every company surged (or not!) around the same dates, coinciding with the RNS releases. This formed my strategy of buying in before RNS release, selling some time after release and buying into next company. From this I created my computer Diary which tells me what shares to Buy (or not) when, and how long to Hold. There are of course under/overlaps so the plan has to be manually overridden, forming an Action Plan. Current situation. Just sold £10k in bwy Profit £534, about to sell £10k rdw Profit £1018 (at todays prices) and moving £20k float to psn along with £6k from Isa for Final Results, and later Divi of £110 per share (Cur Price 2021 - yield around 5%). ie £1300 just for Divi from Float alone. Then to tw for their Divis (FinDiv 2.6 around 1.5% Yield, SpecDiv 11.2 around 6.7% yield). Btw I have not even entered Company Refs numbers for Feb-17 yet (received about 04/02/17), only use that now to find new companies, and check out margins, Per's, Peg's ... of Builders. You were a bit -ve about psn while I am piling in there - FinRes 28/02/17, ExDivDate around 01/03/17. BoL
Firstly, Nige, I had noticed that Josh didn’t exactly let you down gently in expressing his thoughts on your system - however, the fact that his bedside manner was a tad harsh doesn’t diminish what he had to say! Perhaps the more positive & helpful approach would be to look for the common ground between us? My take on this is that the three of us are all into builders shares, we’re all seeking value, and we are all prepared to switch around between shares to achieve this based on our differing ways of assessing the alternatives. And this isn’t a zero sum game, so we’re not in competition with each other. Having said that, I would say that Josh & I are closer about which shares we rate the highest and also in our respective methods of coming to our views. But hopefully there’s something to be gained all round from considering different points of view, even if that only means that we feel reinforced in our own methods. I also personally find that the process of writing my ideas down to explain to others helps to bring me more clarity. Teaching is the best way to learn, I reckon. Not that I’m trying to teach you as this is an exchange of views but I’m saying this because I do also write a small private investment blog for family and friends who have come into investing in builders’ shares by following my lead. Maybe one or two of them might comment on this thread if they pick up on it? Josh, I am still considering your preference for ROCE so that’s something to perhaps come back on another time, and also same for your system, Nige, otherwise this would be pushing an already long post! For now, I’d just like to make a few points that are hopefully salient.
Having sold a business in 1984 and initially having put the capital with different investment funds for the next 16 years, I finally started in this investing for myself lark in 2000, and this is now very much my living, by buying into a large number of well-known companies, across numerous sectors, whose prices had fallen significantly in the face of the first dot com boom. By 2003, I’d realised that I’d essentially only made money overall from just two sectors, retailers & builders, and that the retailer gains were probably a one-off as they recovered from the market’s over-reaction to the overly-hyped prospects, at that time, of online retailers such as boo.com. And, as part of this, I did some pretty basic analysis on every company in the FTSE100 at the time to find that, overall, it was going nowhere and that, in its entirety and to paraphrase Kipling, it was effectively “A trap set by knaves for fools”. And, many years later, Hargeaves Lansdown showed that to be so by calculating that 15 years invested in the FTSE100 since the millennium, with dividends re-invested, had produced an overall gain of just 52%. Whereas, if you’d been invested in builders over that time, as I have, and if you had also been enhancing your gains by switching between shares successfully, you’d no doubt have achieved many times more than the FTSE100 performance. And I was essentially only using company balance sheets to come to that understanding about the FTSE100. Total tangible book value start and end of a four year period, change in debt over that time, etc. To my mind, the reality was far different to the story suggested by EPSs and P/Es for these companies individually. And I think this is where Josh & I may not necessarily be in alignment. Take a current FTSE100 company, Next. I’ve just run some numbers. Tangible BVPS: 2012 120p; 2016 182p; increase over 4 years 62p. Add ordinary & special dividends actually paid (rather than declared) during the four years, total 769p, gives total gain 831p per share. So, in my way of seeing things, that’s a total effective EPS for the four years of 831p, whereas stated total EPS = 1,565p.
So, average EPS just over 200p, for a company that has no real assets barring reputation, in a sector suffering death by a thousand cuts due to on-line retailing. Personally, if I was open to investing in non-builder shares, which I’m not, I wouldn’t want to be paying more than 4 or 5 x earnings for that, so £8 to £10 a share, whereas Next’s actual price is 38 quid. So I think the market’s having a laugh, but I guess time will tell? Now Bovis. Their pre-credit crunch high was just over 2 x book, whereas Bellway’s was just under 2 x book. But, based on long term track record of ROE, Bellway were much the better company, at 10 years’ average ROE of 22.4% compared to Bovis at 17.9%. Scroll forward to current, and Bellway’s price is 55% above their previous price high whereas Bovis’s is still short by 28%. So, in my view, not only was Bovis hugely over-priced in 2007, it was clearly there to see at the time. And Bovis’s **** poor returns shouted that all was not well back at the ranch. And now that has come to pass. My next point is that I trust balance sheets more than P and L accounts and particularly over the longer term because, in the end, there’s nowhere to hide. Consider Persimmon. They did two smart things to push their price up successfully. First was a heavy land-bank write-down compared to, say, Telford who just kept on going. So, measured from the bottom post-slump, Persimmon looked like the dog’s whatsits but, measured from the pre-crunch high, they’re nothing special, behind both Bellway and Telford in fact. The other smart thing they did was a “me too” on Berkeley with a nine year forward dividend plan which looked amazing at the time. That was, until I number-crunched the nine years forward for all the builders to find that they were also likely to make a similar level of gains and payments over that nine years. Again, nothing special performance-wise for Persimmon but they did win the cigar for thinking of it and then having the cojones to do it. But the upshot is that they’re currently way too expensive for me, Gunga Din. So, enough of that - I’ll wait to see if you chaps come back on this?
Hi Strictly, Josh Strictly if you look back on this board you will see I have my own plan (which Josh despises, but has done nicely for me). Basically, buy a share before the RNS, watch price rise and sell some time after RNS buying into the next RNS. The companies I invest in are bkgh, bdev, rdw, bwy, psn and tw. This produces 27 Action Dates as the target for a float which I started at £9k raised to £10k then £20k, £26k (+6k Isa1), soon £32k (+Isa2). Say I buy £10k in a company at 1000 per share = 1000 shares, watch price go up to 1100 then sell £10k @ 1100 = 909 shares, so I have gained 91 shares in that company, and still have £10k float for the next company. The reason this works well with builders is that the only significant share price movements are when they produce RNS's. It needs quite a lot of work though (Rel price graphs, 5 year History for each company from which you decide whether or not to buy on RNS release, and how long to hold...) and you need to set up a Diary - autoupdate? Other companies I watch, but don't invest in are bvs & crst (London based and underperforming), gfrd (too much low margin Civils) and gle (SE land - Brexit bubble?) BoL
Hi strictly, No problem- you are welcome. I do predominantly invest in house builders (although not solely) because it is a sector I know and understand well as I cover it as part of my job as a chartered accountant. I also believe the supply and demand dynamics and fundamentals remain strong and in favour of this sector despite brexit, but I continue to monitor conditions given its cyclical nature. I have a number of financial models that continually evaluate current pricing levels of sector peers and yes I will move funds without hesitation in and out of sector peers if my pricing models dictate there is an arbitrage opportunity. I have had more success with my proactive management strategy than I would have otherwise done with a buy and hold. A recent case in point was Bdev which at the start of the year was trading well ahead of crest despite fundamentals indicating crest was worth substantially more so I switched more funds into the latter which has been the best performing stock in the sector so far this year, redrow not too far behind. That being said I am more than happy to take a long term view and wait for pricing anomalies to close- tef and INL for example. Whilst I agree that broker consensus on EPS for RDW has been too low, I don't believe ROE is an appropriate tool for estimating EPS. The reason being ROE and EPS both require you to forecast a P&L and thus require an implicit understanding of how volumes, costs, and pricing mix will interact to create a profit for the year. This requires an implicit understanding of the businesses strategy, its landbank, dividend policy and its volume ambitions as well as a wider macro understanding of how market conditions will most likely transpire over the coming years. All of this would be required to construct a P&L needed to calculate and understand how EPS and ROE are likely to move over the coming years and thus it would be an oversimplification to merely take a judgement on how ROE would move over the coming period, without considering these, because these are by definition the ingredients that feed into the ROE calc so the p&L needs to be forecast and understood first, not the other way around. That being said, I too had higher EPS forecasts for RDW calculate on the above basis and I suspect the brokers took a too pessimistic view of the likely impact from Brexit and will subsequently upgrade their forecasts over the coming period. Another reason why they prefer CRST to RDW is because of the differing dividend strategies and the cyclical nature of this industry- there is no guarantee CRST or RDW will hit their EPS targets in 2019, market conditions will dicate whether that is the case, but in the meantime CRST is paying out large dividends holders can collect but whilst still offering just as strong growth prospects.
Josh, thanks for your considered & informed response to my post, I appreciate it. My impression from your posts over time is that your investment strategy is similar to mine, in that I only invest in house builders, I’m always seeking to be in the best value and, when there is a worthwhile gap, I’ll switch shares. This seems somewhat in contrast with most of the regular contributors to the Telford share chat who seem committed to buy & hold, and also at odds with many contributors on other builders’ share chats here who often seem rather pre-occupied with short term share price movements. On the whole, I’m only really concerned with short term price shifts insofar as they affect relative value between shares as I trust that price follows value in due course. Where you and I may differ a little is that I look mainly backwards, at longer term track records, to then take a view on likely ROE trajectories rather than taking too much notice of analysts’ forecasts. A recent case in point is Redrow. I’ve had them down for 83p EPS for 2019 since last summer, whereas analysts at that time had them down for 56.28p, so I was seriously adrift. Now Steve Morgan, an understated chap at the best of times, has guided at 77p, and I’m now more confident of my figure, which was based on how the ROE was likely to shape up. We’ve mentioned Redrow, Crest and Telford. The other builder in the frame for me is Bellway – similar long term performance as Persimmon for two thirds of the price. Bellway is my benchmark company to judge my performance against, as an investor could have just sat in that share scratching their bum since 1983, re-investing dividends, and making an average 15.7% gain in value per year ever since. Over the past five years, since the builders started to sort themselves out after the existential trauma of the credit crunch, switching between shares has given me around an extra 10% a year above Bellway’s performance. After selling my business in 1984, I had my money sat in investment funds until 2000, but from there I’ve managed my own shares, and for the last 13 years have been in housebuilders once I came to see that that was where decent returns were if you could live with the share price volatility. I come at this from a business background rather than an accounting one, whereas you seem to have a more formalised knowledge that suggests you have accountancy training relevant to the analysis required for this? So in that respect you are maybe one up on me! So, to get down to it, I’d like to give your use of ROCE a little more thought as, to date, that’s not been a focus for me, and maybe I’ll come back to you on it. In the meantime, I’m happy with the results I’ve been achieving over the past 16 years - though I think we’re not too far apart in what we’re doing here so maybe there’s some insight to be had on either
These EPS forecasts, both given as guidance by the respective firms for 2019 targets, yield at todays price P/E's of CRST= 540/86 =6.3 RDW = 470/77 = 6.1 At first site these look like remarkably similar values. But we are missing something in our analysis- the completely different dividend policies. For analysis purposes lets suppose conservatively that 2019 arrives, both firms hit their EPS targets and trade on 10x EPS. CRST is £8.60 and RDW is £7.70- that's a capital gain of c 59% and 63% respectively, but now lets look at the dividends. From 2017-2019 CRST is forecast to pay a staggering £1.15 per share using the same broker consensus link I gave you earlier. This represents an additional 21% return over the period amount to a TSR by 2019 of 80%. Using the same period RDW is forecast to pay 45.9p which is just an additional 9% from dividends taking its TSR to 72% over the same period. Granted RDW dividend forecast may still need tweaking by the brokers but I still think CRST edges RDW in terms of value over the period and brokers seem to agree. Both great picks though and far better than the big 3 (TW. BDev and PSN) IMO but CRSTS greater efficiency and dividends give it the edge at the moment.
The analysts prefer CRST because they see it as a stock where you can have your cake (growth in EPS) and eat it (large and growing dividend). Although RDW growth in EPS is impressive its forecast dividend yield of a mere 3% for 2017 pales in comparison to sector peers such as CRST with a yield well over double that at 6.5% for the same financial year. Furthemore CRST generates returns on assets more efficiently than RDW and this can be seen from its superior ROCE of a whopping 31.3% vs a substantially lower 24% for RDW. This tells us CRST uses assets 31.3/24 = some 30% more efficiently than RDW meaning it needs lower capital employed to generate growth in EPS than RDW does and thus can afford to pay more out as dividends whilst still growing. ROE is a measure of return to shareholder funds but it can be manipulated easily with higher gearing; a low equity base and proportinally larger debt base will simply increase ROE which is why many prefer ROCE as a measure of efficiency. WIth regards to EPS the 62p is a factual amount and represents the profit accrued in the 2016 period for CRST as audited under financial reporting standards so it can be taken as correct. The ROE uses this metric in the numerator but it uses a balance sheet metric in the denominator which is a snapshot of the book value at a point in time. When calculating the ROE either the book figure at the start of the period, or the figure at the end can be used or indeed an average of the two but whatever way you look at it CRST also has superior ROE of 22.8 vs 19.8 forecast for the 2017 period with what looks like the average method used here: http://www.4-traders.com/CREST-NICHOLSON-HOLDINGS-12583133/financials/ The book value does essentially grow by the EPS minus the cashflow paid out as dividends in the period. But you need to be careful when calculating this as the dividend paid in the period will not be the same as the dividend for the financial year but a split between the final from the year before and the interim from the current year- this is a cashflow metric as opposed the the EPS metric which is P&L and the book value metric which is a balance sheet snapshot at a point in time. Furthermore the book will be somewhat diluted from the estimate this calculation gives you due to nil cost shares issued during the financial year for various share plans and executive bonuses etc. CRST does indeed trade on a higher price to book metric but this is again linked to its superior ROCE which is c. 30% higher than RDW's. The price to book metric can also be misleading depending on the carrying value of assets on the balance sheet too- such as land bank some plots of which may well have a realisable value well in excess to that carried on the balance sheet thereby giving a misleadingly high price to book metric. I like RDW but still prefer CRST and TEF at current prices. Take CRST for instance- the forecast 2019 EPS is a whopping 85p vs RDW stated guidance t
Josh, I agree a good set of results for Redrow, though not so sure re Crest Nicholson? The analysts seem to like Crest somewhat more than they do Redrow, maybe because Steve Morgan seems to be his own man and also maybe because he owns 40% so doesn’t need to curtsey to the City too much, and so maybe the company’s own forward guidance of 77p EPS for 2019 will now give the scribblers a kick up the bum. If you take Crest’s 2016 stated EPS of 62p against BVPS start of year of 239.22p, in theory that’s an ROE of 25.9% However, if you take end 2016 BVPS of 271.34p and add divs paid through the year of 22.4p, that gives 293.74p less start BVPS 239.22p which suggests actual 2016 EPS of 54.52p which gives actual ROE of 22.8%. And this doesn’t shine against Redrow’s 2016 ROE of 24.3%. And as I have PBVs for Redrow of 1.51 and for Crest of 1.88, that puts Redrow well ahead in my reckoning in terms of best buy. You might have slightly different PBVs because I update my BVPS figures every month to best estimate rather than just use most recent actuals from accounts. However, I’ve been impressed with your number crunching over time, and I’d be interested to know if you agree with my figures?
Need some Broker upgrades to raise this price significantly.
Great results as you say. It's frustrating that RDW are still priced so low on p/e basis, due to Brexit risks. Gla Rich
Stunning set of results, smashing market expectations once again! Redrow growing at breakneck speed with big improvements in ROCE, margins and EPS. 2019 EPS guidance is for a whopping 77p EPS placing redrow on a forward P/E for 2019 of just 6.1 against previous market consensus of 62p EPS or 7.5 PE. Ofcourse, this assumes wider macroeconomic stability but in itself is a bullish statement by Redrow and a very impressive set of interims. Unlike Bovis, Redrow has executed its growth plan impressively well whilst maintaining its 4 star NHBC rating suggesting a strong management structure and rigid set of internal controls. These figures place Redrow amongst the top in sector for value alongside TEF and CRST trading on similarly low P/E's (but crest with far superior yield). Brilliant results yet again!!
Quick tree shake at 1100 today before good results tomorrow? Expect rise later today...fingers crossed!
It closed last year at 470p so that's a loss this year of almost 9%.
Gleeson is not a risky business, in fact quite the opposite. It is less risky than traditional house builders because it sells homes in the North with an asp of only £125k which is affordable for almost any couple and furthermore its strategic land business is based around buying land without planning permission in the south and progressing it through the system and selling for large profits to hungry housebuilders. Hardly a risky operation is it! This fact that it is a lower risk play is also backed up by all the facts. Take a look at its beta coefficient which measures the volatility of its shares to the market portfolio; it is only a fraction of what a higher risk builder such as Bdev's is for instance. And the fact that it is lower risk translates into its higher valuation on a price to earnings basis; because it is lower risk investors require a lower return than they do at other higher risked house builders which is why it trades on a much higher PE ratio than sector peers. Feed its numbers through the capital asset pricing model and you will understand! Sorry, not at all interested in your "system" it won't allow you to beat the market over the long term. I am afraid its completely useless but good luck with it! If you want to make superior returns you have to look forward and anticipate which businesses are likely to perform best in the future and outperform the market, this requires an assessment of fundamentals and implicit understanding of the businesses operations and strategy, not a floored "system" based around publicly available information! I'm afraid what you are doing is nothing more than gambling!
Hi Josh Gleeson is a strange and risky Coy to me, they sell land in SE England and build a few Houses in the North. They successfully sold off all their Construction sector (as opposed to Household Goods, tw et all!), and as you say they have been doing well. I don't know enough about them, but on my watch list. Similarly gfrd - Construction and moving to house building cos the margin is so much better. I have modified my plan to a £20k Float in Builders and my Companies now include bkgh, bvs and crst. So now 8 Coys to bounce the Float between including bdev, rdw, bwy, psn and tw. I need an intial holding in all of them (say £2k) - not done that yet for bvs and crst, before I can start trading in those Coys. Anyway, since changing my Systems the comparison becomes incompatible, so a comparison between Ltbh versus my chase RNS system to Date, based on £9k Float - Ltbh Coy Shares Price Value Price Value P/L bdev 357 504 1,800 472 1,686 -114 bwy 76 2,378 1,800 2,402 1,818 18 rdw 463 389 1,800 415 1,920 120 psn 101 1,782 1,800 1,687 1,704 -96 tw 1,098 164 1,800 146 1,602 -198 OrigVal 9,000 CurVal 8,731 Loss 269 Divi Pps Yld% Shares Value bdev 24.70 5.2 357 88 rdw 6.00 1.4 463 28 Tot Divi To Date 116 So Ltbh P/L = 116 - 269 = Loss of £153. My Chase Rns System, Deals Done No Actn B/S Coy Event Shares Price Trade Cost Shares Value 1 23/08/16 B psn IntRes 505 1,782 9,005 6 2 01/09/16 S psn IntRes -478 1,884 -8,995 10 27 509 3 01/09/16 B bdev FinRes 885 504 4,497 33 4 01/09/16 B rdw FinRes 1,150 389 4,506 33 5 12/10/16 S bdev FinRes -949 474 -4,488 10 -64 -303 6 12/10/16 S rdw FinRes -1,175 384 -4,499 11 -25 -96 7 12/10/16 B bwy FinRes 397 2,271 9,016 0 8 24/10/16 S bwy FinRes -183 2,460 -4,491 11 16 381 9 24/10/16 B bdev FExDiv 939 477 4,516 33 10 01/11/16 S bwy FinRes -187 2,407 -4,491 10 12 277 11 01/11/16 B psn MStat2 315 1,730 5,487 38 OrigVal 9,000 CurVal 9,767 Profit £767 767 Divi Pps Yld% Shares Value bdev 24.70 5.2 939 232 rdw 6.00 1.4 1,150 69 Tot Divi To Date 301 So Ltbh RnsC = 301 + 767 = Gross Profit of £1068. Less Tade Cost £194 = Net Profit £874. Cannot promise all numbers are correct - Cut and Pasted from Excel, and Deal Cost of 0 for Buy bwy 12/10/16 obviously wrong! The system will mangle my numbers again, but is only about columns. Far too late and I Hope this makes sense. BoL
Might add, Gleeson also up there.
Redrow now back to pre-brexit price- strongest performance out of any builder post brexit and by a very large margin.