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Top riser in the sector again today! Great stuff- AGM tomorrow could give us a further boost.

The three best value builders in the sector on forward earnings are Bovis, Redrow and Crest. Lets look into these three in more detail and account for the differing dividend yields offered by each. Below are the broker consensus EPS forecasts for the above three for 2016, 2017 and 2018: Bovis: 111p, 127p, 144p. Average three year EPS = 127p. Average three year P/E = 875*/127 = 6.9x Crest: 60p, 68p, 79p. Average three year EPS = 69p. Average three year P/E = 526/69 = 7.6x Redrow: 51p, 58p, 67p. Average three year EPS = 59p. Average three year P/E = 390/59 = 6.6x *Bovis share price calculated ex dividend to account for fact Crest and Redrow already trade ex dividend; Bovis will drop by 26p in two weeks time when it goes ex div therefore the correct comparative is 901-26 = 875p. As we can see from the above analysis, on P/E alone Redrow offers stand out value. But the above fails to consider the fact that Redrow is using more retained earnings to fund its growth than Crest and Bovis and returning less to shareholders, as seen by its dividend cover of over 5x compared to 2-3x. Therefore we must analyse the dividends of the three for 2016, 2017 and 2018 and factor these into our analysis to be able to compare value correctly: Bovis: 46p, 52p, 59p. Total dividend return over 3 years = 157p = 157/875* = 18% of share price Crest: 27p, 35p, 42p. Total dividend return over 3 years = 104p = 104/526 = 20% of share price Redrow:10p, 14p, 17p. Total dividend return over 3 years = 41p = 41/290 = 10.5% of share price As we can see, the dividend returns of the three are very different with Crest leading the dividend returns followed by Bovis with Redrow far behind. We can factor the dividend returns over the next three years into the P/E analysis by simply subtracting the total dividend over the period from the current share price (ex dividend P/E). Dividing through by the average EPS will then give us a dividend adjusted P/E and a value metric that considers the earnings and importantly the different dividend yields: Adjusted three year PE: Bovis: (875*-157)/127p = 5.7x Crest: (526-104)/69 = 6.11x Redrow: (390-41)/59 = 5.9x When factoring in the dividend yields into the P/E calculation we can see that actually, from an earnings perspective, Bovis homes appears to offer the absolute best value in the entire sector. This is closely followed by Redrow and Crest and now that we have factored in the dividend element of returns there is less difference between the adjusted P/E's. Bovis is clearly out of favour with the market, given its disappointing performance over the past year, and for this reason trades at a discount to its forward earnings. It could well prove to be a superb buy if management deliver on the consensus broker forecasts. I continue to own Bovis, Crest and Redrow.

Yet another RNS.. the Chariman, Bill Shannon, in for yet another 5,000 share today, adding to his 5,000 yesterday at £2.93! Relentless buying amongst the directors would suggest this is now massively undervalued.

Almost recovered the entire dividend already! AGM next week which should provide some further support.

Two more director buys flooding through now- if this isn't making a bold statement to the market what is?! This time the Chairman has purchased 5,000 shares, and the husband of another director has purchase over 11,000 shares.. The entire board and their families now seem to think this is significantly undervalued given the relentless director buying.

Hi Dako, Indeed the lower yield here does lead to a lower valuation on the P/E, but even considering that the differential has grown here over the past few weeks and it is now looking tremendous value. I see this as an arbitrage opportunity and have reallocated funds here at these lower levels accordingly. We are likely in for a volatile few months but once the Brexit is out the way and we approach full year results surely people will realize houses are still selling like hot cakes and this will, fingers crossed, test £5 again. Posted this elsewhere, but a great watch. Don't agree with the selection of builders (I favour Crest and Redrow myself- Bovis's strategy good but management questionable) but the fundamental reasoning shares our very own views: http://www.ibtimes.co.uk/uk-housing-why-you-should-bank-builders-barratt-berkeley-bellway-1548265

I'm surprised at the drop here. Redrow now offers easily the best value in the sector, on an earnings basis, having retraced more than others over the past week. The TTM PE ratio to Dec 2015 is just 8.1x; that is FAR lower than any other builder by a long way and the discount looks unjustified to me. The forward PE ratio for June 2016 is forecast to be just 7.6x which is just plain silly! I can't understand why Redrow has fallen further than other builders recently, there seems to be no logic for the amplified trade off here. I see this is an arbitrage opportunity at these levels- if the sector remains broadly flat these will have to gain back some lost ground over the coming weeks! The forward P/B is just 1.39x for June 2016.

Agreed! Mr Mully certainly seems to be enjoying this buying opportunity, just noticed yet another RNS for another transaction he made yesterday- yet another buy of 10,000 shares at £3. He bough 20,000 shares alone yesterday! I wonder if now we have dipped below £3 he will continue loading his boots?!

And a second buy by Mr Mully today at £3.05! Taking his monthly purchase up to 30,000 shares- he certainly seems confident. I wonder if he will keep filling his boots if this falls further?

Richard Mully certainly seems to think it's good value, he has bought yet another chunk today.. that is nearly 25,000 shares he has purchased over the past month! Very reassuring IMO, given his credentials in real estate investment: https://uk.linkedin.com/in/richardmully

Hi Rapper, We could estimate any potential write down by calculating the proportion of SMP's entire portfolio the 9 elms development makes up on the Net Asset Value, and then we could estimate the potential loss on the development and the ultimate write down on the NAV and establish the trading metrics after these have impacted on the balanced sheet and P&L. Unfortunately I don't have the time to calculate these figures in detail at present as I am very busy, but maybe someone else can chip in with some figures if they know them to hand. Ultimately the discount has arisen because of the concerns over the cooling of the 9 elms development, which isn't due for completion until well into the future. With several risks on the horizon such as less interest from abroad in this area and a clamp down on BTL through the increases in stamp duty, prices are likely to cool but I think the market has factored in considerably more downside than will ultimately materialize, hence why I have just bought back in here. I think the directors, who will know the above financial intricacies in detail, recognize this too and have thus been buying in at even higher levels than today. At current prices I see any further downside as limited, and see far more potential upside medium term. Interested to hear Sain and others thoughts too.

Interesting movement here over the past few days. I am not in Bellway, but it looks good value on most metrics at these levels and approaching a similar value to Redrow. EPS for the year is expected to be 286p and with a dividend payment of 1/3rd of earnings the book value should grow by 2/3rds of EPS which would yield some strong valuation metrics. Based on these metrics Bellway now looks good value at current levels: 2016 implied yield = (1/3*286)/2450 = 3.9% 2016 implied P/E = 2450/286 = 8.5 2016 P/B = 2450/(1286+(2/3*286)) = 1.65x The P/E and P/B are well below the sector average, and the operating margins and ROCE suggest the company is above sector average efficiency and so this discount to sector peers look unjustified. The strong level of retained earnings and high ROCE should ensure a strong growth profile here. My only concern is the exposure the company has to 9 Elms, which I believe is the reason behind the sharper than sector average sell off here yesterday (slight recovery today at close of play but approached £24 intraday!). I need to look into the companies exposure to the high end London market and in partcular 9 Elms.. any know the level of exposure here?

Indeed, I bought back in here today at £3.12. I think these comments RE: 9 Elms from Pete Redfern must be partly to blame for the impact here: http://www.standard.co.uk/business/taylor-wimpey-boss-don-t-bank-on-battersea-flats-a3192351.html That being said, St Modwen has a relatively well diversified portfolio and a discount of 25% to NAV, even if some write downs are required, looks unjustified. We can take some confidence from the recent director buys. Another small part of my decision to buy back in today was the fact that this goes ex dividend on Thursday to the tune of 3.85p. Not much but should perhaps provide a little support tomorrow.

Re-iterates some of the comments we have discussed, but also points out the view smaller builders are expected to yield stronger total share holder returns. Interesting to note though the strong cash generation here could allow an increase to 190p in the dividend over the coming years: "UBS lifted Persimmon to ‘buy’ from ‘neutral’ and raised the price target to 2,330p from 2,135p following earnings revisions and what it reckons is an underappreciated potential to return even more cash to shareholders. The Swiss bank said that while Persimmon upped its payout per annum to 110p for the next six years, its free cash flow forecast implies the ultimate payout could be closer to 190p per annum, which would imply a “very compelling” 9.3% yield on average. This assessment assumes the business consumes a net £1bn into capital employed over the next six years and a £500m cash buffer is retained for flexibility in what is a cyclical sector. “Returns are exceptional and set to continue to be so Persimmon's financial metrics continue to be outstanding and are, alongside Berkeley, sector leading by a considerable margin,” it said. In particular, it said operating margins of nearly 22%, pre-tax return on capital employed of 38% and post-tax return on equity of 25% in 2015 are “exceptional”. “Our expectation is that these returns will continue to be generated as margins expand further (UBSE 24% 2016E and 25% 2017E) as the newly acquired land from recent years fully enters the sales mix,” it said. UBS argued that although the total return potential of 20% on a one-year view is below the sector average of 40%, this comes at relatively low risk considering the housebuilder’s high visibility on margin improvement and lack of exposure to London, which could be riskier in a ‘Brexit’ scenario. "

Nice movement up here, top riser in the sector today!

Persimmon will still improve operating margins as output steadily expands leading to further economies of scale as operational costs are shared over a greater housing revenue. In addition higher margin-ed land, most notably from strategic land, will feed through into the operating margin improving EPS and potentially dividend yield further down the line. With other builders, such as the smaller ones- Redrow, Bovis, Crest, Bellway etc, volume uplift is set to be far greater than at persimmon over the coming years and thus currently even though the operating margins are not as strong (but still excellent at Bellway and Crest) the growth in the operating margin should grow at a faster rate than is possible for persimmon moving forward as economies of scale from the volume uplift manifest themselves, coupled together with again stronger margin-ed land coming through into the bottom line. Ultimately these smaller builders will grow EPS at a faster rate than persimmon if market conditions remain stable, as there is not only more potential to grow operating margins but far more potential to expand volumes further. That being said, there is a risk/reward trade off. Persimmon has an average selling price of just 199k as it predominantly builds in the regions and thus is not as vulnerable to the heady london market which is more at risk should a potential Brexit occur. That being said, Persimmon trades on an ex dividend multiple of 2220-110/800-110 = 3x NAV. That is well over double the NAV multiple Bovis trades on and is ofcourse down to a superior management and efficiency metrics. But this heady multiple also means the shares may well have further to fall should market conditions take a fare for the worst as they are worth far less on a break up basis were as Bovis only trades on a slight premium. Great income share with some capital appreciation- but less growth potential than than the smaller builders. If conditions remain good I expect smaller builders to outperform TW, Bdev and PSN by a fair margin in terms of total share holder return over the next few years. The argument comes back to our analysis on a P/E basis- why pay £13 for £1 of earnings at PSN when you can buy £1 of earnings at Redrow, Crest, Bellway or Bovis for £8-10? Yes, there are slightly different risk profiles, but that still doesn't warrant the discount.

Some solid progress today! Takes us back to c. £4.40 when you consider the 4p dividend paid.

What a day for the sector! And PSN a staggering 4% up leading the gains! Next week will be very interesting with TW's results out on Tuesday and with us going ex Dividend on the Thursday we could well reach £23 on the Wednesday when I will be deciding whether to sell cum dividend and invest elsewhere (probably Crest which has ex div a week after). Agree that this is a fantastic income stock that will indeed return a 5% yield yearly and a 5-10% capital gain if conditions remain strong, just feel growth stocks like Crest, Redrow and Bovis who reinvest more of their retained earnings will grow more rapidly. I think £23 ex dividend in the near term will be asking a little too much though, as the book value is currently 800p per share here. When we pay out the £1.10 dividend the cash balance will take the NAV down to 800-110 = 690 and thus 2300p/690 would yield a very toppy P/B of 3.3x which would be above historical peak valuations. Ofcourse the NAV will grow over the course of the year to replenish this by the amount of EPS- dividend payments but the NAV of other builders is growing faster due to higher cover of EPS/dividend.

On what time frame? Very short term I think we might test £22 before the ex dividend date next week, although I will probably sell the day before and reinvest elsewhere. There should, ceterus paribus, be very strong support for the share up until the ex dividend date on March 3rd given the colossal size of the £1.10 dividend.

Annual General Meeting 17 March 2016 Half Year End 2015/2016 30 April 2016 Trading Update 17 May 2016 Interim Results Announcement for the six months ending 30 April 2016 14 June 2016 Strong news pipeline over the next few months here. I think the first half this year will be very strong, especially given the fact BTL investors are rushing to buy properties before the stamp duty rise next tax year. I think this will drive an even stronger than expected set of interim's here given our April half year end. I am currently seeing very strong trading in this financial year for builders, despite what media scare mongering will have you believe! Remember this goes Ex dividend 13.3p on 10th March.