RDW.L Share Chat (RDW)

And thanks for all the fish.

Farewell old friend

Ice - The terms remain exactly the same.

RDW has risen as it is tied to the BDEV share price in the deal.

Hi

With the Redrow merger being discussed again this week, do we know if any revised terms are being considered as the share price is now higher than when the initial details were released?

The way forward with BDEV is likely to be subject to fairly rapid resolution by both parties as the CMA have only raised an issue in one area where they have ongoing house building operations. I am convinced this can be overcome by both builders to reach a positive joint forward going venture to benefit both companies.

It's rising in tandem with the BDEV share price, read the offer terms.

"I heard that she sang in the High Court today."

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Ecologist,

Not quite singing yet, just clearing her throat ~ see my comment on the BDEV chat...

Strictly

Does anyone have an idea whats going on with the SP and why its now rising way over 700?

I heard that she sang in the High Court today. The Redrow sp only needs another 2% to be up with the t/o terms (1.44 * Barratt Dev).

It ain't over till the fat lady sings...

Now being investigated by the Competition and Markets Authority.

Krusty,

You may well have a valid point there re Steve Morgan ~ one which, to be frank, hadn't occured to me....

So thanks for sharing that thought...! :-)

Strictly

Thanks again strictly for your additional commentary on the current shenanigans, I hope the BWY investment works out well for you. I didn't listen to the love-in session I'm afraid, I tend to think that personal motives far outweigh any corporate or shareholder interest in such deals so tend to take them with a pinch of salt. You mentioned Steve Morgan's alleged blessing for the deal, presumably he'll find it a lot easier to shift his holding in BDEV shares than he would have done in RDW without shaking the market, so that could account for his apparent appetite for the deal. Who knows? Anyway, enjoy the rest of your time in Spain, don't rush back here because it's bloody cold & miserable still. Best regards. Krusty

Hi strictly,

Thanks for the reply. Yes, my discrepancy with your numbers comes from the intangibles on Barratt's balance sheet, a reminder and scar of the Wilson Bowden acquisition in 2007.

I don't think you have to amortise goodwill in UK accounting - in the US it would be amortised over 15 years. I agree you are right to exclude it.

MM

MM,

PS

In the midst of my rather long previous comment, I omitted to make the obvious point that the main element of the difference between the PBV figures you and I each have is that Barratt has a shedload of intangibles that I never include in any BVPS calculation, but I can see from your figures that you have...

The balance sheet equity for Barratt as at 31/12/23 of £5,439.6m includes £1,042.6m of intangibles, and this obviously makes a big difference.

Secondarily, you have use the accounting period figures, i.e. as at 31st December, whereas I have used estimated updated numbers as for February.

Strictly

MM,

I approach this by taking net tangible equity from the most recent balance sheet, and dividing by the number of shares in issue at that date to obtain tangible book value per share.

So, for both Barratt & Redrow, that's as at 31/12/23.

From there, I adjust each month for the estimated earnings pro rata since the last balance sheet while taking into account any ex-div dates reached and adjusting for the dividend amounts.

I've been making these calculations, and tracking them on a spreadsheet, for a good number of years now, and experience suggests, based on updating once a later set of figures is released for the next half year, that I'm generally within plus or minus 2% of the actual result...

And while I trade on thin margins between different house builders as and when a perceived value gap opens up ~ as they always have done from time to time ~ I don’t look to trade on one as low as 2% so the margin of error on the estimated book values is mostly tolerable….

And, in any event, it’s my reasonable best shot at coming up with numbers that are up to date and therefore useful for trading upon…

At the end of the day, I certainly don’t always call it correctly, but it’s a matter of aiming to get it right more often than getting it wrong, while also being prepared to take modest perceived value opportunities rather than waiting for the big gaps that usually don’t come and missing out ~ as the market has seemed to have become at least a bit more rational in recent years…

More’s the pity, but such is life…

It is a disappointment, to say the least, that one of the most important players of the sector, from an investor’s point of view, has just been taken out of the game by Barratt, who have acquired it by giving away just a few crumbs ~ so, at the least, chapeau to them given how badly by stark contrast they screwed up sixteen years ago with Wilson Bowden.

By “mere crumbs” I mean they gave away just 2% of shareholder value (by my calculation) so the Redrow share holders received about 4%, being only half the size of Barratt..

However, there’s nowt we humble private investors can do about that bar sucking it up…!

I might have made a nice round trip game last week by moving from being entirely invested in Redrow to now being entirely invested in Bellway, but that was just a one-off, of course, and I’d much prefer that Redrow were still around….

So, last hope on this ~ I’m doing a little mental rain dance that the government kyboshes the deal….

Strictly

Hello strictly,

I calculate the RR/BDEV entity a PBV of 0.94.

RR mcap 2.254b, book 2.02b

BDEV mcap 4.75b, book 5.4b

Combined mcap 7b, book 7.46b => 0.94 PBV

Hence I am not making switch yet.

IRP,

Firstly, re Persimmon, if you click on my name here and scroll through my past comments, then, depending on how far back you can be ars.d to read (I'm far from being succinct, and I do tend to ramble a fair bit so there's a lot to get through….) you'll find plenty on Persimmon, and my "Syd Barrett" moment in respect of buying their shares.

And Vistry, aka Battersea, may or may not have a bright & rosy future, but they certainly don’t have a bright & rosy past….!

So, for me, that’s a bit like Warren Buffett’s baseball analogy of waiting for ages, if it comes to it, for the perfect ball to strike at because, in investing, unlike baseball, you don’t have just three options then you’re out.

And so, being the wussy investor that I am, why would I take the risk that Greg at Battersea has, indeed, turned water into wine (and my somewhat jaundiced view is that he probably ain’t ~ but no doubt time will tell in due course and I have no skin in that particular game anyway so why would I be bovvered either way…?) when I’ve had the opportunity instead to swerve between Bellway & Redrow from time to time to hoover up the gaps that open up between them continually in perceived best value ~ albeit mostly small ones of just a few percent ….?

Of course, Redrow has most probably now abandoned us, and I’ve yet to decide how to replace them in the game, but I’ve had a great start to the year, selling Bellway for Redrow in January and reversing all that back this week, so that was a lot of work for a nice reward and I’m happy to pause & reflect for a while on what the next step might be and, meanwhile, see what Mr Market brings to the table…?

If you go on FT.com for either of these companies and make a graph for the two of them together over different time scales, you can see that, like Lindisfarne, they do largely swing together ~ but not completely so, and it is in those spaces that extra gains are there to be made without any requirement to call the market like most of the folk commenting in these LSE share chats seem to want, or even believe they are able, to do…

To my mind, that is folly, and my records show that I have overall been able to beat Bellway’s performance (that’s my benchmark share) by around 6% a year on average doing this providing I’m not being distracted by buying into something else like Persimmon or Crest that have been wrong moves because they ain’t like Lindisfarne when it comes to price movement alongside Bellway.

You do have to be confident that you can call best value, though, and obviously you do have to be right more often than you are wrong..!

It’s about winning the lottery in slow motion, in my view, and people either get that or they don’t…?

Strictly

Strictly , you clearly have extensive knowledge of the sector and your 20 years following the sector certainly trumps my rather shorter period, although I think I'm a couple of years younger. A 10 year old malt to your 25 perhaps. I am in agreement with you that it is a shame for us all that Redrow and Barratt appear to be merging as it clearly shakes things up and makes it very difficult to make an assessment of what the new monster will look like. On paper, I also agree that Bellway appears to offer better value per money than Vistry. One cannot argue with the ROE for the last 5 years, although it is worth noting that the company has undergone significant changes in the past 10, with Linden/Bovis etc, so there is an argument there that figures are slightly skewed. You are also correct that you would be paying over the odds for Vistry (compared to Bellway) in terms of book value, but I suspect there are a number of things at play here. First is the change in market and the place Vistry are trying to position themselves into. If it goes to plan, it will look like a very different, and presumably less cyclical by business, which carries a premium and the man at the helm has enough savvy to make it work. Thankfully I sold all remaining shares in CRST last year as it is now a bit of a basket case now too. I certainly won't be investing in it any time soon, which is a shame as I have followed Peter for years and have done well with that one. I was wondering your thoughts on Persimmon though. Clearly at face value, their numbers don't appear as good as Bellway. But, they are trading at 10 year lows and it has been a long time since one has been able to buy so cheap, considering the dividend etc. My view is that once we get over the next couple of tough years, the money will begin flowing again and there is potentially significant upside there. Hopefully the Vistry results will be good when they come. Water into wine would be good.

MM,

With regards to book values per share, I calculate these monthly while also taking into account ex-div dates and amounts....

Up to Wednesday this week, I didn't use to bother doing this for Barratt, only for Bellway, Redrow and Crest...

However, Crest have recently dropped out of the zone for me as their low PBV has been increasingly trumped by their managerial ineptitude, and Redrow are, sadly, most likely to have been taken out of the frame by the end of this year unless the managements of Barratt & Redrow were getting ahead of themselves in their excitement at the recent scribblers' love in...

So, as from now, Barratt are almost in the frame ~ especially as their price has taken a bump with resulting lower PBV ~ so I've started monthly figures for them too.

Who knows ~ I might even start doing the same for Taylor Wimps..?

Anyway, by my calculation, this takeover/merger takes about 2% of book value off Barratt share holders and gives about 4% to Redrow shareholders...

So Barratt have had it away here, IMO, and I'm surprised Steve Morgan has allegedly given it his blessing but, there you go ~ what do I know...?

Anyway, as of about ten minutes ago, my PBV figures for Barratt, Bellway and Redrow respectively are:

Barratt 1.08

Bellway 0.98

Redrow 1.04

These figures assume the deal has gone through ~ otherwise Barratt would show slightly more cheaper and Redrow slightly more expensive...

So, until & unless either I have a different thought or Mr Market does something to push me to make a move, I guess for moment I'm happily ensconced in Bellway....?

For me, when it comes to house builders, holding Bellway shares is the nearest it gets to having a comfort blanket... :-)

And their trading update today was pretty inoffensive too, I thought...

Strictly

I agree with moving from RR into Bellway as the next best housebuilder.

Right now Barratt/Redrow combination must be trading at around 85% of book value (?) - I think best to wait for a 10% relative move before I make the switch.

RIP Redrow, you were a loyal dog and didn't deserve to end this way.

Krusty,

I obviously don't know whether you went online and listened to Barratt & Redrow's joint scribblers' love-in yesterday, but all parties on both sides seemed genuinely very enthusiastic about how good this merger would be for all stakeholders concerned, and very upbeat & positive about the likelihood of it passing muster with the man....

Barratt are, IMO, a good business ~ right up there close behind Bellway & Redrow, just a tad too expensive, relatively, still...

I have increased their book value weighting from zero to 5% in lieu of a) Redrow hopefully helping to take them up a level and b) the mooted synergies & cost savings to be had as things progress…

There’s also that, IMO, they really did nick this company off of the Redrow shareholders…

By contrast to seventeen years ago, when they nearly disappeared down the toilet by borrowing £1.7 billion to buy Wilson Bowden just before the credit crunch hit ~ a bit like renting a row boat above Niagara then heading off downstream without a care in the world ~ this time round, they only forsook a couple of percent of book value on behalf of their shareholders rather than wiping out the great majority of the asset value, from which they STILL haven’t recovered.

And they have a strong balance sheet with total liabilities at 49% of net tangible equity.

So, all in all, I would say that the market has hit the share price rather hard, and this plus the improved weighting I’ve now allocated to them means they currently are within about 5% of the trading zone against Bellway for me ~ which is where all my invested capital is as of yesterday…

So, I’m willing that relative price shift, Barratt against Redrow, to continue to move about another 10% in my favour and, voila, Barratt might have replaced Redrow…?

Now there’s a happy thought…!

With regards to yesterday, from metaphorically choking on my cornflakes just after 7am when I saw the announcement, I was full on at it all day trading my entire portfolio across from Redrow to Bellway and generally communicating with my investing crew ~ apart from taking a break for a lunchtime nosebag down on the seafront here in Spain where I’m due to be resting my bones for a few more weeks yet ~ until gone 1am in the morning when I finally finished listening the scribblers’ get-together on the webcast or whatever they call it.

But yesterday was, by some margin, the most productive day I’ve ever had trading shares in the nearly twenty four years I’ve been at this…

Strictly

Thanks Strictly, interesting commentary as always. Can appreciate how difficult yesterday must have been for you. I know if it had been TW., after a 16-year relationship with the company, I would have found it extremely unsettling, premium or no premium. FWIW I still think the MMC could get involved, no doubt we'll find out soon enough. Hope for your sake that BWY continues to evade the grasping hands of larger, less nimble, developers.

"I was wondering your thoughts on the Vistry model..."

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Ian,

I suspect you won't think much of my view on Vistry…?

It’s rather pejorative nickname within our investing circle is Battersea ~ as in the Dogs’ Home…

Reason being is that am a rear view mirror investor, and have been so for the nearly twenty four years that I’ve been involved in, and earning my crust from, this investing malarkey, with just over the past twenty years of which being just in house builder shares ~ hence the moniker…

It may well be that Greg Fitzgerald has been able to turn water into wine, but I want to see it manifest first, and over a few years of consistent performance ~ talk is cheap, and all that…

Whereas, Bellway is my benchmark share…

Yesterday at close of play, I was 100% invested just in Redrow.

Now, having just had my busiest day ever in investing, my head is starting to spin with having had to remain mindful for hours not to press a buy button instead of a sell, or vice versa (I’ve made that mistake once or twice in the past and, on a big trade, it’s expensive..!), I’m now 100% in Bellway ~ which also happens to be my benchmark share.

To compare Vistry with Bellway, their past ten years’ ROE has averaged a measly 7.9% compared with Bellway’s 16.7%.

If you take the most recent five years of those, times have been tougher ~ Bellway’s average ROE is down to 11.8%.

But Vistry’s has almost evaporated, at just 3.7%.

Now, I’m not suggesting that Greg ain’t in fact, managed to somehow discover the hidden elixir of achieving high profits in difficult times, but I’m far too much of a wussy investor to want to risk it ~ especially when you have to pay just over 1.6 x book for this, IMO, questionable confection compared to just under 1.0 x book for Bellway.

I have discussed this before here, and I have seemed to have rattled a few cages about it if I venture onto the Vistry share chat about it…

But, whatever the future may hold, Bellway has a 40 year track record of overall stellar performance, whereas Vistry’s 25 year performance is pants…

But, the bottom line is, I have no idea, and no opinion, on whether or not Greg’s brave new world will happen…?

So, I guess that was about as much use to you as an ashtray on a motorbike ~ but I’m only give you my sincere three halfpence-worth of how I regard Vistry...? :-)

Strictly

For putting my hat on straight earlier. I was snowed under at work, so could only glance over the RNS (which I read as a merger), but then I read a mainstream article, which very much packaged it as a straight takeover.

On my break, I took a deeper dive and found myself in agreement with you guys. I did a few valuations (post-merger, post-synergies, earnings upon recovery etc), and no matter which method I used, I was left underwhelmed.

Long story short, I sold my shares today, and I’m absolutely dumbfounded at why this merger has been recommended by the board (I certainly can’t think of a way in which it benefitted normal shareholders). I expected near £9.50-£10.50 per share from RDW, upon a housing market recovery, and I tend to be conservative. By my reckoning, there’s about 35% upside, with all being well, and with a time horizon of over 2 years.

I still own a small holding BWY (previously 50% of my HB weighting with RDW), but my days of being invested here are very much behind me.