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There's the story and then there's the numbers and, of the two, I prefer to rely on the numbers....
I don't wish to pee on anyone's bonfire, and especially as I don't recall ever commenting here on the Bovis share chat before, so I suppose that makes me the cheeky new upstart, so I'll just put some numbers out instead.
But firstly, and perhaps controversially, I tend to ignore declared EPS figures, and instead use BVPS, adjusted for goodwill and intangibles, at start and finish of the accounting period, and adjusted for any dividends paid, in order to find out what the true earnings were based on increase in tangible value.
Because it's that which is going to count when it comes to calculating PBV, and I consider PBV to be a steadier measuring stick than year to year earnings given the seriously cyclical nature of house builder profitability based on any long term historical record...
Anyway, on that basis, balance sheet value of Bovis as at 30/6/20 being £2,118.831m less £736.305 intangibles (in various guises) gives net balance sheet of £1,382.526m divided by 217.828m shares in issue at the end of the period = 634.69p BVPS.
Calculated on the above basis, the brought forward BVPS as at 1/1/20 was 840.17p, so that gives a loss calculated as above of 205.48p.
If any of the above numbers are wrong, I'm happy to stand corrected - but the above no doubt seems way out of whack with the story otherwise presented...?
So, perhaps take a longer perspective to see if it seems valid.... I'll leave people to decide for themselves...
Including an estimated figure for 2020, and using the above process for EPS and book value each year, Bovis's average return on equity for the years 2013 to 2020 inclusive is 5.7%.
This compares to Bellway - the share I use as a benchmark - which has average ROE for the same period of 18.9%, i.e. more than three times as much as Bovis.
And this has been reflected in share price performance.... since 2013, with divs reinvested on the day received, Bovis has returned investors 45% overall whereas Bellway has returned 186%.
Go back even further, Bovis average return on equity 1998 to 2019 is 12.2% compared to Bellway's 17.4%....
The gap perhaps seems somewhat smaller, but compounding impacts more on the difference over the longer time scale....
In 1998, Bovis had a book value per share of 185p, pretty much the same as Bellway's at 183p in that year.
However, scroll forward to 2019, and Bovis's BVPS is then 855p compared to Bellway's 2,373p.
And yet, despite all the above, the two of them are currently selling at pretty much the same price to book value....!
Wonderful thing, the market...
Strictly
Appreciate the view, are those metrics for VTY going to look markedly different next year,
Following the integration etc?.
VTY now have a sizeable partnership division, so im guessestimating the market may see that
as less cyclical, as we slide in to recession.
fatprofits
"Appreciate the view, are those metrics for VTY going to look markedly different next year,
Following the integration etc?."
I have no idea about that..... I just reckon the Ghost of Christmas past is a more reliable creature than the Ghost of Christmas future...
So I guess we'll find out about that when the future has become the past....?
In the meantime, if one goes with Warren Buffett's idea of waiting for the perfect pitch, personally I wouldn't want to pitch at Bovis right now ~ even if the price seemed good, which to me it doesn't ~ when what is there is largely hope, spiel and surmise...?
But, of course, DYOR and all that, and mine is just an opinion, albeit based on firmed up past numbers...
Strictly
Strictly Bricks
The market seems to agree with you rather than the more positive line though I didn't expect this fall on these numbers; in fact I was quite cheered when I read them. I am in here accidentally as I had and still have Galliford Try who sold Linden to Bovis and am way under water at about one third of my entry price. Long way to go I think.
Kernowlad,
Well, I'll try not to pass any rude comment here on Galliford, then ~ or Vicky Pollard, as they are referred to in our blog elsewhere ~ but they have been a bit of a nightmare since an initial promising start coming out of the credit crunch.....
Their reality check earnings, the process for obtaining such having been described in an earlier comment here today, have been markedly different overall to their declared earnings per share, and this exacerbated their situation of already paying out too much in dividend (which is what Crest were guilty of coming up for covid, but I trust they'll sort that - especially as I've got a lot of Crest shares!) and, as you're probably well aware, they ended up having to do a rights issue right in the sweetest part of the cycle....
Now they're just an engineering business (I think?), maybe that'll change....? But I'm not holding my breath on that and anyway, as the moniker implies, I only invest in house builders and apart from that I much prefer to go for the easy questions on the exam paper....
By comparison, I've got numbers on Bellway ~ the company I referenced earlier today as it's my benchmark share ~ going right back to 1983.... I've only been managing my own stuff since 2000.... and since the start, 1983, taking an overall view, Bellway haven't put a foot wrong, IMO - over the past 37 years, they've achieved an average return on equity of 16.2%...
I use the word "awesome" sparingly, but it applies here....
Over that time, Bellway have turned a 51p BVPS into 2,372p and paid out a further 954p in dividends... if it sounds like a sales pitch, it's because I'm a big fan of them.... but DYOR, and all that... if you scroll back through old comments of mine here on LSE, and go back far enough, you'll no doubt see that I've written plenty about them here...
Good luck with Galliford, then.... if it's any help, perhaps the question to ask yourself is: "If I didn't already have Galliford, would I buy them at today's price?"
Because, if you wouldn't, any tax considerations aside, it surely leaves you pondering why you haven't sold them....?
Regardless of whether or not you're nursing a loss, the market doesn't give a monkey's, does it, and is highly unlikely to price Galliford kindly from here for you...
I speak as someone who has serious previous on this, so I'm not trying to lecture you on this... I got it very badly wrong with Barratt in the credit crunch.... so much so that I had to sell up and move house because of it.... down to Devon, as it happens, God's own land, and the next county to you by the sound of it...?
One of my three golden rules now is "Don't ever invest in companies that are heavily leveraged, no matter how promising they look...".
Amen to that, still...
Strictly
Thanks for the thoughtful and interesting reply.
The short answer is no I wouldn't buy them now. My main house builder is BKG though it swings a lot and at £44 and up you need to buy a lot to make anything much on those. Pays a handsome dividend though.
Yes I am in the next county but just over the bridge.
I wouldn't have bought Vistry either!
Good luck and stay safe
I have read the previous posts with interest. And no doubt historically valid points have been made. Taking a broad brush, the share prices have all been battered by Covid. And now worries over the economy, and Brexit raises its head again. All house builders have challenges ahead. Some will fare better than others, but their challenges are similar.
I liked today's report, specifically the references to integration and synergies, and I think Vistry partnerships will provide a degree of improved resilience in uncertain times.
One can pick over all of these builders at the moment, with guidance from the past, and still finish up in the same place when trying to forecast what lies ahead.
Raleigh
"One can pick over all of these builders at the moment, with guidance from the past, and still finish up in the same place when trying to forecast what lies ahead."
Well, events may prove you correct, who knows for sure, but twenty years in this game has shown me that it does pay to take a view and, after all, that's surely why everyone comes here, reads, and makes comments...?
If I was presented with two lines on a graph and each was heading steadily in different directions and I had to decide where the next plot for each would be, I'd no doubt continue the trends.
And the market does take a view... it offers a wide range of price to book values on house builders' shares, from 2.70 for Persimmon down to 0.62 for Crest, so it clearly thinks that Persimmon will do rather better than Crest with every £1 of land you entrust it with...
As it happens, Bovis and Bellway are currently on exactly the same PBV of 0.91, so the market places equal trust if one is using price to book value as a measuring stick - which, of course, you may well not do?
To reshape some of what I wrote yesterday, and if we imagine that everything changes hands at book value, then the 183p worth of Bellway (a single share) bought at the start of their 1998 year would have delivered a further 2,190p of book value plus 975p in dividends, being 3,165p in all.
Whereas, for the 185p worth of Bovis bought at the start of their same year, you would have received a further 670p in book value and 509p in dividend, making 1,179p in total.
As I say, you may prove to be right, and Bovis may now race ahead and leave many other builders for dust....
And, as investors, we all necessarily have to take a view and clearly we take different ones...
But, apart from the numbers above, my view is that not only does Bellway's impressive performance stretch back much further than the period discussed, there's that not only has Bovis bought a business from Galliford Try ~ which is another company that has hardly covered itself in glory since the credit crunch ~ the new management also came from Galliford Try, so I wouldn't want to bet that they haven't also imported old bad habits while they were at it...?
As Warren Buffett has said "In the business world, the rear view mirror is always clearer than the windshield"
And I have no argument with Mr Buffett's long term performance, even if his most recent twenty years haven't been so great....
But anyway, I'm only trying to explain the sort of things that feed my perception of value and no doubt we each have different ways of doing so.... if your particular criteria work for you then I respect that and, if they don't, well, like me, you're probably always seeking to up your game further - rust never sleeps, and all that (and I'm speaking generally, rather than not referring to Neil Young there..).
Strictly
A rising tide lifts all boats.
Raleigh
"A rising tide lifts all boats."
As we seem to be having a Buffett themed morning, the part he added to the above was:
"...but only when the tide goes out do you discover whose been swimming naked"
And I think that's probably more our concern here, as it doesn't seem much like a rising tide at the moment....!
Strictly
BKG fallen by £3 in the last few days. If only I had the nerve (and ability) to trade them. I don't have historical records as long as SB but I have had BKG since 2013 when it was about £20 and so it has more than doubled with significant dividends as well so I am more than happy with it. £1.07 about to be paid next week for example.
I foolishly bought GT for the dividend but then it all went t*** up and so I am stuck with them and Vistry until they pick up at least a bit.
I thought it was JFK. Never mind.
Raleigh,
"I thought it was JFK. Never mind."
Yes, you are right, the first bit was JFK...
Buffett just added the second phrase, I imagine as a reality check for over-exuberant investors... and, let's face it, there are a few of those around from time to time...
Strictly
Strictly,
I'm guessing you are less hopeful on CREST, than some of your
Previous posts?.
Why bother about Crest Nicholson on here. SB anticipated a 'nightmare' with Vistry on the Galliford Try purchase - not the case at all.
fatprofits
"I'm guessing you are less hopeful on CREST, than some of your
Previous posts?."
No, quite the opposite.... Crest has had two duff years (including current year, and we're seeing that it's not alone in that) prior to that its profitability was towards the top end of the sector for the previous six years.
They also got into bovver before the credit crunch, by that seemed to have been entirely due to a Scottish entrepreneur, Tom Hunter, buying the company with a modest down payment then loading it up with debt, a la Debenhams, immediately before the credit crunch.... he lost his shirt and the banks took over the company... bit like renting a rowing boat just above Niagara then going with the flow...
Whereas, Bovis seems to be having a duff life... their only bright spot was that they had low borrowings going into the credit crunch so didn't need an investor-value-destroying rights issue like, big time, Barratt and Taylor Wimps and, later, in a smaller way, Redrow, when the king returned to put things right there...
I give book value weightings to companies against Bellway, which I use as a benchmark as it's been so steady, comparatively, over the nearly forty years I have records for.
Crest gets a weighting, in my rating system, of minus twenty percent....
There are one or two folks in my circle who would penalise Crest more heavily, but there you go - we're all over eighteen and old enough to fight & die for our country.
By comparison, Bovis is in a class of its own with a minus fifty percent... again, others might argue with that, but then, again, we're all investing our own money so are entitled to come to our own views.
The point is, even with that weighting as a handicap, Crest is still yards ahead of the other house builders IMO in terms of investor value as its price to book is so low even with being penalised by the weighting - and that's after having already taken a self-imposed hit on their land bank values as at the half time whistle.
At the last reckoning, they were also the ONLY house builder, of those I monitor, whose balance sheet passes the acid test ratio that accountants use as a measure of solvency and risk.... and that probably surprised me as much as anyone once I'd thought to check that particular ratio, but there you go!
Anyway, the upshot is that Crest is currently by far my biggest holding.....
Everything has its value, even Bovis... at the right price, it could be a buy for me.... but, relative to the others, probably not this side of 300p.
After all, IMO, the market's been getting Bovis's relative price wrong for more than twenty years (and if you think I'm overstating that, make yourself a comparison graph, on FT.com, of Bellway and Bovis since the start of the century), so why would it change the habit of a lifetime..?
Strictly
So which Housebuilder's so will do best over the next say, 6 months, or any period you like?
Raleigh,
1) "Why bother about Crest Nicholson on here. SB anticipated a 'nightmare' with Vistry on the Galliford Try purchase - not the case at all."
2) "So which Housebuilders so will do best over the next say, 6 months, or any period you like?"
To take your two points, the first of which crossed with my previous one while typing it and I have probably already covered it to some degree there....
Vistry's results were every bit the nightmare I'd imagined, the scribblers had them in for 60p EPS for the full time result and I had them in at a precautionary minus (200p), i.e. a loss...
Okay, that was a precautionary figure, but not by much as it is turning out.... my new estimate is minus (185p) based on the figures just released. Most of this, of course, is writing off all the intangible asset, aka fresh air, that was generated on the balance sheet through the purchase of Galliford's house building arm...
I am a seeker of value not a predictor of price. If you look at the graph I referenced previously, twenty year comparative between Bellway and Bovis, the former has a price gain of around 700% percent and the latter only 100%, yet they both sit at the same PBV so, priced more rationally, the gap would surely be even bigger given that Bellway's performance implies it's worth a higher rating than Bovis...
By contrast, Persimmon's PBV is around three times that of Bellway based only on a few years of relative out-performance.
I'm happy to rest my case on that.
Re your second point, it might only be a one liner, but would probably be a rather mammoth task to answer properly....
However, my previous point probably assists..
I have no idea about the next six months - after all, the market has had more than twenty years to get Bovis right and it still hasn't done so!
The whole point is that I'm seeking value and that can be very different to price in the short, and sometimes medium, term.
You can look to Warren Buffett to validate that if, as I do, you have respect for what he has achieved and the things that he says about investing... I certainly learned a lot from him when I started.
For example, one of his "If you don't feel comfortable owning a stock for ten years you shouldn't own it for ten minutes"
Strictly
Strictly
Do you follow BKG (my biggest house builder) and if so where do you rate them on your scale?
Cheers
K
Kernowlad,
"Do you follow BKG (my biggest house builder) and if so where do you rate them on your scale?"
No, BKG is not on my list I'm afraid... mostly for the following reasons...
Pre-credit crunch, Tony Pidgeley was heading for one of those super-sized directors' bonus malarkeys, a la Persimmon (who, I reckon, copied him), and I wasn't impressed with that - even if it was headed off at the pass by events, the intention was still there... and obviously TP is no longer with Berkeley, or with anyone else come to that, but maybe his spirit lives on there and, being an investing wuss, I don't want to chance it...
And then there's all the share buy backs in the past, and I'm a simple soul who wants to be able to accurately track book value per share movement, because that's where it all begins and ends for me and most other stuff that emanates from company reports tends to be varying shades of fluff and fiction, IMO....
And now we've got another big added unknown.... London.... that's where BKG are.... and it might be originally my home town, but I haven't got a clue what might happen to house prices there and it just may be that it's been far too good for far too long and that there's a big reckoning to come....?
Stick with the easier questions on the exam paper, I reckon... like I say, I'm an investing wuss...
So, I follow Bellway, Redrow, Crest and Inland closely in that I'm updating each of their book values per share, to my best estimate, at the end of each month and at each ex div date, and I'm constantly tweaking that as events, and updates (and whim) unfold.
Less closely, I also follow Barratt, Persimmon, Bovis and Taylor Wimps - but none of those is anywhere near being in the value zone for me and I'd likely only up my tracking of them if they start to get close - I have held shares in all of them at different times in the past..... and even in Galliford (I hesitate to own up to that, but fortunately I'd got out of them in good time by 2013).
As I've mentioned, my benchmark is Bellway.... and that works two ways.... firstly, to mark other house builder shares against, and secondly, to mark my own performance against them.... since I've been doing that seriously, from the start of 2013, my target was to be beating them by an average of 10% a year, so that's a tough target...
I was managing an average of 6% a year until 2020 and the arrival of covid.... I got lucky, and for the first time in twenty years I moved a substantial portion of investment funds into Index linked Gilts, which I regard as plan B in case the smelly stuff really does hit the twirly thing.
The upshot is that my average improvement against Bellway is now about 10%, but against that, I've now got less skin in the game so a serious Builder share price bounce would knock that performance back again....
But, as things stand, I ain't complaining..!
Strictly
Strictly
Thanks for that. I was also worried about TP and bonus but held my nose.
I haven't done too badly but my all time star is GGP which today is at 19p and I bought a lot for me at 2p.
It has rescued some other bad ones.
Take care and stay safe
K
Kernowlad,
"...but my all time star is GGP "
I had to look up GGP to see what it was...?
Gold....hmmm, that's some way above my pay grade, I'm afraid - and, as my moniker implies, I stick to house builder shares...
All power to your elbow, though, if you know what you're doing with that, but house builder shares over the past twenty years have transformed my finances for the better, and I'm exceedingly grateful to providence that I discovered them...
Of course, opportunity is like beauty.... it's in the eye of the beholder.
Strictly
Canna cord raise target to 840p. and reiterate Buy.
Appreciate your view, thanks.
I live in Weybridge where both BKG and Crest started out.
BkG now HQ'd in Cobham, Crest was/is near Chertsey way.
Social housing partnerships again.
https://www.insidermedia.com/news/north-west/vistry-partnerships-appointed-to-runcorn-scheme