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Okay folks, I'm in! It took me a whole week of limit orders to get a 2% position but I'm quite happy that I've managed to enter. I might add a bit more next week.
I've done a bit more due diligence and like the company even more. Obviously the product is amazing but I especially like their emphasis on using more cocoa and less sugar. Also the CEO seems to be exactly the type of CEO I like. A co-founder who loves what he does and sees the company as his baby and wants to see it succeed just because of that. Obviously it helps that he has lots of his own money in HOTC shares so his interests are aligned with shareholders. In addition, Angus always underlines the importance of all stakeholders, not just the shareholders. A company that has the interest of its customers and employees at heart usually makes good products that make it successful.
The balance sheet is solid despite the extra debt they took on during Covid. EPS, FCF and ROIC are good and increasing, except for 2020 due to Covid. The big question mark is whether their expansion in Japan, the US and Denmark will be successful but as I see it the chocolate is so good, people are going to love it!
There's nothing here that's a red flag for me. Everything seems fine except for the low liquidity of course. That's probably the only reason why I won't make this a major position. I don't want a big portion of my portfolio to be locked away.
Also I wish the price was lower but as Buffett says "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price".
Boohoo may link executive bonuses to improved worker rights:
https://www.reuters.com/business/sustainable-business/britains-boohoo-may-link-executive-bonuses-improved-worker-rights-2021-04-23/
Great discussion. I'd just like to add that other than the dividend I think the company is undervalued.
TW grew shareholder's equity in the last 4 years, post Brexit by 8.5%. Those weren't great years for the UK housing market. I've seen some analysts predict 4% (Yahoo) and other 14% (Simply Wallstreet) growth. However, let's be conservative and assume the same growth which is kind of in the middle between the 2 numbers. So I pick 8.5% growth and use their FCF from the last year before Covid (2019 FCF), which btw isn't their highest number so again conservative. That would be 497m.
When I put these numbers into a DCF model I get that the company is 50% undervalued! Again this is a conservative estimation. Add to this the chance of a hot housing market which already seems to be happening, and the dividend and TW is definitely a good pick.
I think we can all agree that the market right now is really hot.
"Homes are selling at the fastest pace ever"
https://www.rightmove.co.uk/news/articles/property-news/busiest-ever-housing-market-buyers-sellers
Regarding the end of the government schemes, I'm also not too concerned. This is a quote from the article:
Tim Bannister adds: “Housing market activity remains high in Scotland where there has been no extension to the Land and Buildings Transaction Tax holiday, which has now come to an end. This suggests that the same could happen when the tax holidays start to come to an end in England and Wales from the end of June.”
Does this really matter? I mean 10% up or down, who cares? If the annual growth materialises at 25-30% as forecast by analysts than BOO is going up between 90% and 140% over the next few years. Unless you're a day trader it really won't matter whether you bought slightly below 300 or slightly above!
As we know TW does a lot of business with first time buyers so the changes to H2B won't affect them as much as other builders who are more aimed at second time buyers (e.g. Redrow).
From the annual report:
"During 2020, approximately 46% of total sales used the Help to Buy scheme and we worked with 4,800 households to take the first step to home ownership or to move up the housing ladder (2019: 34% and 5,693). Approximately 80% of sales through Help to Buy in 2020 were to first time buyers (2019: 76%) at an average price of £286k (2019: £277k)."
Basically the change will affect 20% of the 46% of deals or about 9% of all their deals. Not an insignificant number but if activity picks up due to the 95% mortgages that IMO should more than compensate for any impact from the new H2B.
How come? It could be just a big fund positioning itself and buying in big chunks daily. Also the FTSE 250 has been going up significantly in the last 1 month so there's probably some index buying involved as well.
Happy Monday!
We might be at record prices but I still feel that the UK housing market has been mostly stuck in one place for the past 5 years since Brexit.
I have friends and family in Germany and Austria. Have been chatting with them recently about housing and prices there have really exploded over the past 5 years. London used to be a lot more expensive compared to Vienna and Hamburg, two of the best places to live in Austria and Germany (and in the world for that matter haha). However, when we compared prices in my area in north west London and in decent parts of Vienna and Hamburg, the prices were quite similar: about 8000 euro per square metre (for a flat). Moreover, there it's now more expensive to buy than to rent which is not the case here in my area. Partially that's probably due to rent controls in those countries but still... I believe we're not in bubble territory in the UK just yet.
I remembered reading a UBS report that confirms this anecdotal evidence and managed to find it. Here's a link:
https://www.ubs.com/content/dam/static/noindex/wealth-management/ubs-global-real-estate-bubble-index-en-1509323.pdf
The FTSE's been a laggard. The US market has obviously been making new highs for months but even the DAX broke through its pre-pandemic levels last month. It was about time the FTSE joined the party haha.
On that note, the FTSE might be back to where it was pre-Covid but the house builders aren't even though business has been really good for couple of months and it's probably going to stay busy at least till September. I won't be surprised if TW makes some quick gains to go above 200.
Hi Ilike,
I've done my own DCF valuation and actually it's not exactly fully priced IMO. I think it's about 16-17% below fair value. So there is some upside and the dividend is nice. There's just not enough upside/margin of safety for me. Of course it could be that my valuation is too conservative and the stock does great. I'm not advocating against holding it, I think it's a great company. Just not the right pick for me right now.
Great summary of the current sentiment. I'd like to add 'Be fearful when others are greedy, and greedy when others are fearful'. I've sold my oil and gas stocks today and bought BOO. Will probably buy some Tencent tomorrow.
Big oil was a no brainer when oil was negative or last October when the stocks were at the prices from March. I had a great ride but right now I don't see it as such a good deal. Sure oil could go to $80 but it could also stay where it is. And then what? You're stuck with a tobacco type company that's also a price taker and basically has no moat.
Same goes for the miners. Iron ore, copper and gold are at 10 year highs we haven't seen since 2011. Gold was great in 2016, now I'm not so sure. I'd rather sit in BOO, if the price takes few months for the price to move so be it. In this business you have to be patient.
Okay, folks, I'm in. Just put 8% of my portfolio into BOO. I'll probably increase that to 10% soon-ish.
I did quite a lot of due diligence over the last few weeks and I like the company, the potential upside, and the limited downside.
So, looking forward to some nice discussions on this BB hopefully over the next several years!
Okay, folks, I'm in. Just put 5% of my portfolio into RDW. I wanted about 10% exposure to the UK housing market so I put 5% into Taylor Wimpey and 5% into RDW. I think these are the best of the bunch. They are better companies and have bigger upside compared to Barratt, Berkeley, etc. I quite like Persimmon but felt it's fully priced and there's little upside.
I did quite a lot of due diligence over the last few weeks and couldn't decide which one of RDW and Taylor Wimpey I like more so I bought equal chunks of both haha.
So, looking forward to some nice discussions on this BB hopefully over the next several years!
Okay, folks, I'm in. Just put 5% of my portfolio into TW. I wanted about 10% exposure to the UK housing market so I put 5% into TW and 5% into Redrow. I think these are the best of the bunch. They are better companies and have bigger upside compared to Barratt, Berkeley, etc. I quite like Persimmon but felt it's fully priced and there's little upside.
I did quite a lot of due diligence over the last few weeks and couldn't decide which one of TW and Redrow I like more so I bought equal chunks of both haha.
So, looking forward to some nice discussions on this BB hopefully over the next several years!
I think ultimately this and the Leicester factory issues are just temporary. This isn't a terminal problem for the company that will impact its long term future.
Considering that, they are a blessing in disguise, as they allow us to purchase cheap shares, way below fair value. Compare this to ASOS which is above fair value and thus not something that I'll invest in.
All very good points stt1, there's always some risk involved.
However, whoever is in power in the UK can't afford a big correction in the UK housing market. It's simply too big too fail. Personally, I expect that we'll see scheme after scheme to support the housing market. There's also been lots of money printing by the Bank of England and that money needs to go somewhere.
Add to this the somewhat unhealthy obsession of the British public with owning a property and I don't see any kind of significant slowdown. As I said before I think we've just had the slowdown and now there will be another leg higher in the housing market.
Btw as an individual I'm not saying this is a good thing. Hardworking people like frontline workers should be able to easily afford a property but unfortunately that's not the case in the UK. However, there's not much a small fish like me can do. I don't make up the rules but I have to play the game. So an investment in TW would hopefully help my situation. Who knows, if one day I get filthy rich I could start some kind of housing charity haha
Ilike, thanks for sharing! Did they mention what's the timeline for that TP?
I have TW as fair value at 310. However, I assume they will maintain the same growth of 8.5% that they've had in the last 4 years. I'm looking at shareholder's equity growth. To get to their number I have to put 7.5% growth in my model. I'm using a payback valuation method, similar to DCF and looking at the next 6 years.
Personally I feel the last 4 years haven't been the best for the UK housing market with Brexit, Covid, etc. My thinking is that the busyness we've had since the summer will continue due to the stamp duty holiday extension, end of lockdown, and people building up savings in the past 1 year. Then next year the Brexit hangover should be gone as well and if there's some inflation even more people might pull the trigger on a house purchase. So, I think the next 4 years should be better than the previous 4 years not worse as HSBC seem to estimate!
Folks, none of us really know what the growth rate will be. We're all just guessing!
However, let's look at some numbers. The shareholders' equity growth (i.e. our claim on assets after debts) has been 45% over the past 4 years. So higher than the 30% number I've seen mentioned here. The 30% is actually what analysts expect for the next 5 years (see Yahoo Finance). In other words lower growth of 30% instead of 45% has already been priced in!
Personally, I like to be even more conservative so I'm using an even lower growth of 25%, almost half of the growth BOO's had over the past 4 years. So even with much lower growth the company is substantially undervalued!
Not only this but at current price you have 50% margin of safety, so even if I'm completely wrong and growth is even lower (e.g. 18%) I'm still not going to lose money which is the most important thing!
Warren could you please explain?
https://www.youtube.com/watch?v=vCpT-UmVf3g