Member Info for FFObsessed

Cash is an asset though. One that can generate you a return and give you maximum flexibility if required. In the doomsday scenario that you gave where the pound and dollar are worthless, good luck selling that land for anything close to what they paid for it. Ideally you don't want a company to ever be forced sellers of assets. You also can't pay your bills with land. You can pay off your bills with cash, rent out all unsold properties and invest remainder of cash in something like risk free gilts which have high yields at the moment. Also in a more realistic scenario when all that happens is asset prices drop, I'd much rather have cash, even in a high inflation environment. You can then buy up cheap land and make a killing in future. However, as I said, I don't think things will get anywhere as bad as this and you can't go wrong with any of these companies, but waiting for a better environment to buy and you'll end up paying more which will limit your returns. "You wait for the Robins, and you miss the spring."

Also for the DCF, it's a fools errand to try and accurately calculate one. But that's not the point. Warren Buffet doesn't even try. He just says it must be so obvious that he doesn't even need to calculate them. The company that will get you the best return for a long-term investor is the company that produces the highest free cash flow over that period compared with the price you pay. Of course, land bank plays an important role in that, but I'm hoping that these companies get so cheap that you can't go wrong with whatever future cash flow they produce. Anyway good luck to everyone in whichever companies they choose and I hope you all make a lot of money 👍

The value of a business is the total amount of free cash flow it will produce over its lifetime, discounted back to today's value. If it can produce a lot of free cash flow without needing to invest in as many assets, that's one sign of a quality business. If that business owns a lot of assets it can develop and sell, that certainly adds to the value but it does not dictate the total value of the business. Remember, land requires significant costs to build on as well to get the best return. Inventory of unsold houses would be better as the cost to develop has already occurred.

It's a strange one as this business just seems to do better and better. I'm buying more and more, my second biggest holding now. Yep, only time will tell.

If only it was as easy as looking at price to book value. Book value is a fairly poor indicator of a good investment. As Warren Buffet has said a really good business is one that can make a lot of money off a low book value. He never considers book value. And if you look at Bellway's last balance sheet they don't have the cash and receivables to pay off the trade and payables if things got really bad. Also as house prices drop land prices drop too and most of Bellway's assets are land. That book value would drop very quickly If things got really bad. In that kind of scenario I'd rather own the business with the most liquid balance sheet that could just pay off all their owings and shut down construction for as long as needed. Personally though I don't see it getting that bad and I like Bellway. I'll definitely be buying them for the recovery but I don't think you can go wrong with any housebuilder for a truly longterm investment. They've all been very well run, they have obviously all learned from 08/09 which is good to see.

100% agree Registerme. Extra regulation coming along as well to reduce CO2 emissions, which will increase costs further. Absolutely crazy economic policies. This country is in a rally bad way financially. Government have done a terrible job.

Once again, Persimmon dropped that much in 2008 due to a lot of debt and a large dilution to prevent any financial trouble. That won't happen this time with their cash levels. Getting a price that low would be a gift of a lifetime.

THG is now my best performing investment, from the worst just a few months a go. Crazy how quickly things can turn.

Don't beat yourself up Dave. No one can time things perfectly and if you do you just got lucky. Look at it this way. If you bought the peak before the 08/09 crash, 10 years later you'd have doubled your money plus all the dividends. Not an incredible return sure, but a decent return none the less.

With the strength of these housebuilders balance sheets, now is just a case of slowly accumulating over the next few years and hold until interest rates go back down.

If you're new to investing, do NOT use margin. Infact don't use margin ever.

Sounds like a sensible plan, hope you make a ton of money 👍

For housebuilders the payment period is usually 12 months. They would pay the accounts that are due first of course. They also have enough cash to cover and receivables to cover the current payables entirely. Worse case scenario, they would first cancel the dividend and buy backs (obviously) then they would halt all building operations and sell land and unsold homes on the cheap if they desperately needed cash, but that would have to be an even worse case than 2008/09. They could even take out an RCF to make it easier to pay trade creditors. I'm aware shareholders are last priority in liquidation, behind secured creditors and unsecured creditors, I stated as much.

But that's just Barratt, let's look at Taylor Wimpey, they've could also pay off their entire owings with cash and receivables and have pretty much no bank borrowings. They won't need to do a massive rites issue again.

Persimmon have enough cash and receivables to cover all payables and they have no bank borrowings.

I'm not saying people should start plowing money into these housebuilders now, I'm not. Wait as long as you want but people need to be realistic about the financial strength of these companies compared to 2008/09. It's not the same and you can't expect the same. 95% drops are (unfortunately) not going to happen.

Oh I'm not discounting it entirely as debt. I'm just using how Barratt Developments classify their financials. They classify themselves as having ~£1.1BILLION in net cash. I disagree with you that trade payables are the riskiest form of debt. Banks are secured creditors and are first in line to receive any proceeds from liquidation, that's why there is less risks for banks if a company ends up being liquidated. A trade creditor, supplier, contractor etc is classed as an unsecured creditor and is actually 4th in line during liquidation, just before the poor old shareholder. If a trade creditor caused a company to file for bankruptcy protection and was eventually liquidated they would lose out so it is not in their best interests

Also, the trade payables will not be to just one company, they will be to many. For trade payables to cause any issues they would collectively all have to be called in at once and all of them refuse to give the company any leeway. This is not going to realistically happen, hence a high amount of bank debt is in reality more risky.

But anyway the point is that housebuilders today have a much stronger balance sheets than they have in 2009. There was immediate risk of bankruptcy back then. That is not the case today, and won't realistically be the case no matter what happens with the housing market over the next few years. Waiting for a similar 2009 style price drop is very very unlikely. Although nothing is impossible if people really start to over panic.

Also with Marston's, they may have a lot of pub freeholds (assets) but they have £1.6Billion in borrowings, very little cash, and not much net cash flow. A lot of that is leases so that's not too risky but they have about £300 million to pay back by January 2025 or re-finance. I think they'll be alright, but you have to look at a lot more than just book value. Doesn't tell the whole story. If there was a big recession, it'd be difficult selling a bunch of pub freeholds to generate the required cash.

Thats mostly trade and other payables though, look at their financial/bank borrowings now: ~£220million vs ~£1.3Billion CASH

vs

2008/09 Borrowings : ~£1.7Billion vs ~£170million cash

That's why they needed a £720million rights issue due to a serious risk of bankruptcy. That wouldn't happen today, their balance sheet is massively stronger. Same for Persimmon and other house builders too. You can't just look at a price chart from 2009 and think the exact same % drop will happen. Things are different. I'm sure these companies will keep dropping, don't get me wrong, but if anyone is waiting for a 2009 style low they're gonna miss a great opportunity, as it's extremely unlikely the market will panic that much when there's not going to be any imminent threat of bankruptcy. That's why they dropped so much in 2009.

Barratt Developments had £1.6BILLION in NET debt and did a £720million placing/rites issue back then. That's why they dropped so low. Now they have over £1.1BIllion in NET CASH. The financial positions of UK housebuilders now are substantially better than in 2008/09.

Persimmon had about £1billion of debt back then. £800 million loss due to write downs of their land bank. And had to secure new terms for their credit facility to avoid a rites issue. They were in bad shape.

Now, is a very different story. The mortgage situation is also different now than back then. If you think Persimmon gets to a similar low as back then I think you're living in a dreamworld. Personally though, I hope Mr Market agrees with you as I have about £100k to invest and anything that ridiculous would easily make me a million a decade or two later so fingers crossed!

Inflation data tomorrow correct? Then interest rate increase on Thursday? Everything should depend on that unless there's an AGM announcement, but I don't really expect that. If there's something to announce, they'll just release an RNS on a random day imo.

Say hi to wildtiger when he turns up down there.

Last chance to sell before the 40s guys! /s

It's because I was about to break even. We can't have that.