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Strictly,
It seems that Job Curtis, the fund manager at City of London (CTN) - one of the most respected fund managers in the game, although I agree that that is not a high hurdle - agrees. He is reported to be piling into UK house builders. Slightly more puzzling (but CTN is all about the yield, so I guess that is a large part of the answer) he favours Persimmon, Taylor Wimps and Berkeley Homes. I have a fondness for BKG, but not the other two.
Hello Nige.
Yes; I agree with the thrust of your points and the impact of the supply/demand imbalance in particular. That was a key reason that I liked the TEF relative low cost London housing thrust, despite continuing comments that the London market is dead. I think we are all generally agreed that the market has a different take, resulting in depressed prices. Good news if you are a net buyer of shares.
Terrace,
I think that it is a combination of factors. First, a lot of people still remember the complete meltdown after the financial crash that started in 2007when, as you know, a number of house builders were heavily leveraged. Add to that a general view that house builders are heavily cyclical and that we may be heading for another recession, exacerbated by Brexit issues. Top that off with worries as to what will happen if Help to Buy is withdrawn in a few years.
Although I invest in lots of other stuff (unlike Strictly), I think that house builders are a compelling proposition at present (and were a complete steal at the turn of the year). So, I have invested much more in this sector than anything else over the last year so. Latterly, that was in TEF (and I share your pain and some), but more recently those proceeds reinvested mainly in RDW, which is now my second largest holding in any share in my overall portfolio. It is always dangerous to say that this time is different from the last, but I think that it is. Even if HTB is phased out, I suspect that any Government will have to promote builder friendly initiatives. They always have (think back to MIRAS etc).
Given the miserable interest rates on offer, the logic for staying in cash surely has to be that shares are still overpriced and that there will be much better buying opportunities in the future. Who really knows, but the market is currently trashed. Staying in cash is a bigger gamble than investing in the market for long term solid performers, in my view. Cash in itself does not deliver a decent return. It is only useful if it is used to buy in at bargain basement prices. Assuming that you are not day trading or borrowing heavily to acquire shares, why else would you hold off in a bombed out market?
This sort of derisking exercise is one of the reasons that I have reinvested a good chunk of TEF proceeds in BWY rather than other builder stocks, although it isn't currently a huge part of RDW's housing stock. I suspect some others will be less taken with this focus.
Strictly,
Yes, I rather prefer RDW and BWY, although rather less convinced about CRST. As you have accurately observed, the market is not always rational, so the price dip for BDEV today on the back of very good results persuaded me to diversify with some of my TEF proceeds, although it may be more of a trading position, compared to my other builder holdings.
Strictly,
Just out of interest (but real rather than academic, as I did initiate a position in BDEV earlier today as a live comparison with other builders I hold), is your MAIN problem with BDEV the true PBV, once you strip out the large chunk of goodwill which still loiters on the balance sheet?
Strictly,
I am conscious of the need not to turn this into a UANC site, but the Sunday papers are pretty useless today, so here is my response from the pub (literally).
Terrace Hill was a shell and the business now (Master developer) is entirely different. The crew in charge largely hails from Chelsfield, who I knew reasonably well and who had a decent reputation.
They are geared with development loans, but have a self imposed limit on those loans of around 30%. That is very low for a development company. It is cheap money, largely from Government, with interest rolled up and repaid on disposals. Most devcos come a cropper because they are much more highly geared and they are zapped by cost overruns and inevitable delays. Canary Wharf Mark 1 was a prime example which I am aware of from personal and painful experience. Canary Wharf Mark2/3 (which I also know pretty well) have been happier experiences. Essentially, these schemes work well after they reach critical mass. UANC has the added benefit that it has a portfolio of strategic sites. It is a very interesting play, in my view, but I am aware of the possibility of confirmation bias. I feel a drink coming on...
Thanks Strictly.
Just a couple of comments:-
1. The 2018 EPS figure was distorted by some fairly large commercial space (i.e non-core) disposals. The strategic site core licence fee payments are only just starting to ramp up, because this is a very young company. I don’t think that the forecasts that you refer to are that daunting, but we are/ I am crystal ball gazing, so time will tell.
2. I completely agree that the investment case for RDW is more proven and easier to assess. As my next Strictly Wacky Races return will show, a materially larger part of my builder portfolio is invested in RDW etc than in UANC. However, I am happy for UANC to be in the overall mix. It is a very different play to the rest and it will take time to mature. You could regard it as a self-imposed handicap for the purposes of SWR this year!
Strictly,
I completely get the fact that a company like UANC is not going to be for you, but I think that there is a case on the numbers - just not on EPS/ROE at present. As with any growth company (and UANC is only about 5 years old), it involves taking a view on progression over the next few years, based upon what has been going on to date. So, the company has a bunch of consented and very large strategic sites, plus a number of others at a fairly early stage for which planning and other consents will be needed. The latter are in for free but represent hope value. They should not gobble up material cash whilst they are being progressed.
The sites which are consented and have been recently valued (mostly externally)result in an EPRA NAV per share of 340.6p. That figure has been increasing over the last few years as the major sites have progressed and more builders have signed up on licence terms which involve commitments to build minimum levels of houses and pay minimum contracted amounts. The minimum committed payments have risen substantially over the last 3 years.Minimum contracted receipts were circa £10.8m p.a.in September 2016 and had reached £26.8m p.a. by March this year. Aggregate contracted minimum receipts have also more or less doubled - £95.9m by March 2019. So that is a royalty type payment stream over approx the next 4 years, with a number of key builders (including Bellway, to keep this minimally on topic)doing repeat business.
Looked at on the basis of PBV, it is around 1.11. However, the valuers discount the plot values materially to reflect the strategic size of the sites held by UANC. That discount has been decreasing as deals with builders provide better comparable. UANC estimate the latest value of that discount at 139p per share. So by no means guaranteed, but a pool of potential value. For reasons I will not bore people with (but based on readily available information), I expect the next valuations to increase the EPRA NAV figure and further decrease the large site discount.
Finally, UANC is currently ploughing all its cash back into the sites and only pays a lowish, but progressive, dividend. It expects to have to look at that again in about two years. The share price has fallen a bit over the last few months, probably affected by the malaise over the whole sector. I don't think that you are being thick (and I only hold UANC as a relatively small part of my builder portfolio) but nor do I think that the emperor is in danger of being up on an indecency charge.
I very true, Terrace, but look at his results over a lengthy period in both FGT and Lindsell Train Global Equity.
I have just read an interview with Nick Train (manager of Finsbury Growth and Income), who usually talks good sense - fairly rare for fund managers. Referring to current volatile conditions and whether to stay in cash, his response was that he has never known a time when people were not worried about any number of macro issues. As such, he argues that the rational response (although it might not work out, at least short term), is to invest in fine businesses in order to protect/grow wealth. I tend to share that view.
Specifically on builders, Strictly, I accept that investing in UANC is slightly off piste and that the current P&L is not pretty. However, it is very much in growth mode and has a dominant market position, with what I consider to be very undervalued assets (large site discount). Anyway, this is slightly off topic, so I might explore this slightly more fully on your blog.
Just to chuck my two pennyworth in. PSN are uninvestable for me, because they have royally p****d off Government and are in real danger of losing accreditation for HTB, which is really important for them - more so than pretty much any of the other key market players. I agree that they are working hard to sort out past sins, but I worry that mud sticks. I happen to still like BKG, although the price is top. They are a very smart operator and now have significant holdings outside London - e.g. Birmingham. As a TEF refugee, I am looking for other sensible housebuilding plays, not least when CBRE eventually pays up. RDW and BWY are obvious picks and that is where I have been investing recently, but I also like UANC on an asset basis (obviously not a house builder, but a counterpart)y and I am also looking at the likes of Grainger, although not yet convinced.
Time to join this board. I have invested some liquidated TEF proceeds in BWY, but rather more devoted to RDW. Still building, so much more to invest when CBRE pay up. Very sorry to see the demise of TEF. The TEF non-prime London focus on BTR was very attractive to me and there is really not an equivalent that is sensibly priced, so a rethink is underway. BWY have some London exposure, but seem to be doing well at Nine Elms, which I fear will be a graveyard for some participants (and I am not thinking about Greystar/Henderson).
I voted against, but it was always highly likely to go through unless a serious counter-bidder emerged. I was surprised that the votes against were pretty low. Time to move on.
One final thought. If you are sufficiently motivated and available, you could ask the platform to issue a letter of representation tomorrow and then show up in person on Tuesday and vote. Corporate action nominee votes are now closed. Some/most platforms may not be able to issue a LOR tomorrow, so this is a long shot. When I last needed to do this two or three years ago, the letter arrived by post, rather than e-mail. Votes really matter for the Court hearing. All shareholders have an equal vote, irrespective of the number of shares that they hold - i.e. the same as the likes of the hedge fund players who now hold a significant part of the equity. BTW, is anyone bothering to attend the Court hearing next Tuesday?
Too late to vote nominee shares, sadly. Votes had to be in by Friday morning at latest, save that direct holders could turn up in person and cast a vote on the scheme proposal (Court meeting) just before the meeting starts next Tuesday.
The majority of PI shares will be held in nominee accounts. Although many - but not all - platforms (e.g. Hargreaves Lansdown and Interactive Investor) will facilitate shareholders voting as a corporate action, it is a safe bet that many such holders will not vote. If it gets as far as the 6th August meetings without a counter-offer, I think that it is game over. On the issue of due diligence by another party, TEF is a publicly listed company and the counter-offer would be hostile. I don't believe that such a bidder would be entitled to carry out any due diligence. The timing constraint would be putting the financing for such an offer in place. If the appetite is there, there is still enough time left.
Sain, I agree that this document does not enlarge on what we already knew about the reasons for the proposed sale - not even who approached who first.
As to the meeting yesterday, in response to a couple of queries, I made the point that the meeting was rather a non-event (as expected), because the bid could not be discussed. The conversations that I had afterwards were on other off piste stuff not in any way relevant to the bid, directly or indirectly.
As a non-local (I live in Central London), I would only add that what goes on in Waltham Cross stays in Waltham Cross. The TEF specific stuff will hopefully be ventilated on August 6th.