Member Info for colinco

That is some investment discipline all those who waited, well done. Remember not to sell too early now.
Me, I was right in there at the opening bell.
Senior management simply know more, and, in my opinion, whenever senior management start quoting Financial Reporting Standards, the trade quickly becomes risk-free, regardless of share price movement.

This is the type of company that Mr. Buffett would like - vertically integrated, strong customer base, slow burner.
Good opportunity in the Far East.
Highly priced - 23x earnings for a capacity constrained company is pricey. Even after the new chicken processing facility in Eye has reached full capacity (increasing revenue by 30%), the company will still be priced around 20x earnings.
Would be interested around 16x earnings (£21.50)

thorpyuk, Boschybear, karv1,

Don't forget about the £150m of "virtually certain" claims and £35m of "probable" claims that are not currently allowed for in the cashflow statement nor the net debt/cash position. Post Bovis deal and post claims Galliford Try are expected to have net cash of £300m+.

Also, I wouldn't get too bogged down on what will happen to the £300m Bovis cash. It will find its way to the shareholders either in the form of a higher share price (20p EPS) , a very high dividend yield (covered 2x by pre-exceptional profits = 10p dividend), or a share buyback (net cash greater than market cap).

Philpot,

The contracts may be the same (after all, this is where the company specialises) however the key difference is with whom the contracts have been agreed. Galliford Try have a good working relationship with Highways England. In fact, this was the reason why they won the contracts. I suspect there will be little work agreed with the Scottish Government going forward.

Meeting MREL requirements is not a problem for Metro Bank. One of the benefits of having a baller as chairman is that the bank is not susceptible to artificially inflated costs of raising debt, particularly not when only £250m is required.

Pokerchips, HeresHopin,

You have it round the wrong way. If I were to take up the scrip dividend then I would own a greater proportion of the company going forward than I did prior. Similarly, if I were to buy more shares in the open market using the cash dividend then I would own a greater proportion of the company going forward than I did prior. It is those shareholders who need the dividend for income whose holdings are diluted. Retaining cash is a by-product of scrip dividends. Retaining cash is never a reason for scrip dividends.
Here is an example to try to shift you both from your current thinking. Imagine a company wanted to conserve cash. Rather than issue no dividends, it decided to issue scrip dividends to all shareholders. No shareholder would then be diluted as they would hold the same proportion of the company as they did previously. However the company would have less cash as it would have had to pay tax at source on the scrip dividends.

Pokerchips,

Scrip dividend = dividend reinvestment plan. There has to be dilution in order to differentiate between those who take cash and those who choose to reinvest. By taking cash and buying in the open market, you would end up in the same position as taking a scrip dividend, less stamp duty and dealing costs. Scrip dividend has nothing to do with whether the company can afford it or not, but instead whether the shareholder needs the income.

Strictly,

For me, the question that you posed depends on whether you focus on absolute return or return relative to a particular benchmark. Personally, I focus on absolute return. I would therefore prefer to underperform the market and grow my wealth than outperform the market but lose wealth. A significant holding of cash, at all times, is a must for an absolute return investor. As share prices rise the absolute return investor's wealth rises in the short term. As share prices fall, the absolute return investor's wealth rises in the long term, as shares are purchased at lower prices. With this in mind, cash generates a higher return than any other asset class, hands down.

Bamps,

You have got the short term and long term borrowings the wrong way round. It is the long term borrowing of £100m that Bovis will inherit. Galliford Try also have more than sufficient cash (£591m) to cover borrowing due within the year (£450m). This is laid out in Note 14 within the recent financial results.
For completeness,
the additional £98m of short term borrowing refers to bank overdrafts , there is also £150m tied up in working capital

Londoner7,
Based on your assumptions, your maths are correct.
My assumptions, however, are different. Specifically, your £610m implies that Bovis' market cap will increase by £675m* (as per the RNS). I don't think this is reasonable given that Bovis has a market cap of £1.4bn and yet Galliford Try's housing business has a larger land bank and generates more profit.
*0.293x(1,401m + 675m) = £610m
**29.3% already allows for the £60m bonus share issue to Bovis shareholders and the 10% placing

Keep it simple!
What Galliford Try's shareholders are giving up:
2/3 of Galliford Try's housing business
What are Galliford Try's shareholders receiving:
1/3 of Bovis Homes existing business
For a Galliford Try shareholder, everything else can be ignored as the net position remains unchanged.
Effectively, Galliford Try's housing business generates roughly £160m profit after tax, yet its being valued at £675m (P/E ratio = 4.2)
Board need sacked!

Mental accounting garbage. You would think Galliford Try were laden with debt. Its like me transferring cash from one of my bank accounts to another of my bank accounts and thinking Im better off. Not to mention being given shares of a company whose shares are to be diluted in order to raise the cash.

I cannot understand why Metro Bank continues to expand its branch network at the current time. With external pressure on income from a competitive mortgage market, why create additional internal pressure on income via higher operating costs (currently increasing at £40m a year). The £350m capital raise affords them an additional £7bn of lending before a further capital raise is required. The focus must therefore be on getting the share price much higher before this next capital raise, otherwise major dilution. Hence the focus needs to be on profit. Rolling out the new fee income services without further expanding the branch network, in the short term, would have made this a strong buy. As it stands however, non interest income will need to grow significantly to avoid a loss both this year and the next.

Yes, all banks would very quickly become loss making and would remain so until confidence returned. Around 70% of most banks lending book is 2 year fixed mortgages. Consequently profitable books can quickly become unprofitable.

Yes, they have a decent capital buffer at the moment. However, they have a cost:income ratio of 92% (Lloyds: 46%, CYBG: 77%). So they will become loss making quicker and consequently for longer than any other bank.

Here is how I see a no-deal Brexit playing out. Personal and Business lending dries up. Banks then focus on mortgages. The already very competitive mortgage market becomes loss making. All banks eventually report losses. All banks continue to report losses until personal and business lending recovers. The million dollar question for me is whether Metro Bank have sufficient capital to ride out this period.

I foresee the half year results being pretty dire. The recent sale of a 12month term deposit at a market leading 2% was clearly an attempt to reduce the liquidity risk following the spike in the loan to deposit ratio. This 2% will certainly attract a lot of deposits. However with the capital ratio being so low, there will be limited ability to lend. Hence the lower profits are soon to become much lower.

Given the deterioration in the share price, a placing of shares is now no longer the best way forward. Plenty of alternative options would achieve the same result without destroying shareholder value. The loans (assets) could be sold to another retail bank or private company. Alternatively the loans could be packaged via a securitisation. Money would be well spent consulting with an investment bank to get the company out of this mess.

Pearls, Im just about to set up my own house building company. No debt, just cash. More than happy to bring on board additional investors. You may even wish to play an active role. Email me: colinco83@hotmail.co.uk. The more the merrier.

It seems strange to me that you can have a CVA after a pre-pack. With a CVA in place, this company would have continued on. The lack of CVA is ultimately what stops MA making a formal offer. The leases are simply too onerous.