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Afternoon Nige, I take little notice of past performance as it is no indicator of future performance. In a semi-strong form efficient market such as the FTSE 350 there is no way you can beat the market by basing your investment decisions on historical data- much academic literature has proven this. I enjoyed a phenomenal ride in TW from sub 25p, but exited last summer due to the fact the business model is now mature and growth will slow as the business approaches optimal volumes of c. 14k units. Same story with Bdev. It is also a mistake to compare historical performance without any thought into the businesses you are comparing, because TW., Bdev, and Redrow nearly went bankrupt in 2008/2009 and thus there share prices fell far further than other builders, and thus also recovered far more sharply than those such as Bovis and Bellway which were actually more stable during the downturn. You will also note that had you taken the same view a year ago, you would not have invested in Redrow as it was very much a laggard- so basing your investment decisions on historical data would have proven a huge mistake as Redrow subsequently surged to the top of the sector in terms on total share holder return. In my view over the next year, or maybe 2, if economic conditions and fundamentals remain strong that will be Bovis! Far better to understand the business models of the companies moving forward and assess which is likely to offer the best returns on that basis. I reiterate that my top three builders are Redrow, Bovis and Crest Nicholson, all of whom i am already signficantly invested in. All offer excellent growth prospects, growing dividends and sector leading forward pe ratios. Not a big fan of Bellway tbh, it is growing at no where near the pace of Redrow, Bovis or Crest and offers a far lower dividend than Bovis and Crest. Take a look at the forward PE multiples for 2017 which reflect the growth prospects of the 4: 1. Bovis: 6.5x 2. Redrow: 6.9x 3. Crest: 7.6x 4. Bellway: 8.24 Forward yields for 2017: 1. Crest: 7% 2. Bovis: 6.11% 3. Bellway: 4% 4. Redrow: 3.3% Forward price/book value 2017 1.Bovis: 0.95x 2.Redrow: 1.24x =3.Crest: 1.5x =3.Bellway: 1.5x As you can see for the year 2017, economic fundamentals remaining strong, Bovis offers the greatest value in terms of price to book (infact it trades on a discount to forward 2017 book value). In addition it offers the best value in terms on price/earnings per share. Furthermore it offers the second highest dividend yield behind Crest Nicholson. Bellway comes near the bottom in terms of value for all, coming last in terms of value for P/E, P/B and 2nd to last only to Redrow in terms of forward dividend yield. If conditions remain optimal Bellway will continue to do well, as will TW., Bdev and PSN etc, but their business strategies dictate that they may well not do nearly so well as Bovis, Redrow and Crest Nicholson, all of whom offer significantly better value than Be
Looking at the figures it is also very interesting for us to compare the average selling prices between the two businesses. Bovis have reported the average selling price is 231k. This is surprisingly low, given the fact that Bovis predominantly develops in the more expensive South East. Redrow's current average selling price outside of London has rocketed to 300k! That is an astonishing 300/231 = 29% more expensive that Bovis's product and particularly interesting when you consider Redrow also has stronger coverage outside the South East where average house prices are lower. One of the reasons for this differential was cited in the recent trading update- for Bovis this years figures have been skewed downwards due to a higher mix of lower valued social completions and a higher mix of lower valued private completions than previously forecast. This tells us two things. 1. Bovis's management failed to adequately manage their mix of product and the planning process sufficiently. 2. Bovis's figures next year are likely to be particularly strong given the fact that they will be compensated by growing volumes and a much stronger mix of higher valued PD completions. If Ritchie can deliver this and doesn't disappoint us again, this will probably lead to a much stronger growth in EPS and thus lower forward PE ratio than Redrow for the following TTM. In addition this will help close the ROCE and margin differential and should ultimately result in a slightly faster/larger share price appreciation than Redrow, IMO, if indeed it is delivered by the board. The market wants to see progress in the figures. Both excellent companies, probably THE two best value builders in the sector (you pay a premium for Crest due to its phenominal ROCE and impressively growing dividend). I continue to hold all three.
Morning Nige, Redrow and Crest have indeed taken a battering this week, but I think the higher drop over the past week or so is mostly a reflection of the fact that they had until now proven remarkably stable as the rest of the builders retraced earlier- their imminent news, which has obviously now been released, helped initially stabilize their share prices. Take a look at Gleeson as well, that has taken an absolute hammering this week down from c. £6.25 to £5.37, a whopping 14% drop!! Regarding Bovis, I think it would be a big mistake to sell Bovis now. Lets take a look at the figures in the latest trading update. Last year revenue was 809m. I calculate from the trading update that volumes increased by 3934/3635 = 8.2%. Next up I calculate that the average house price sold increased by 231/216.6 = 6.6%. We can therefore calculate that the revenue likely to be reported by Bovis will be c. (809m* 1.066)*1.082 = 933m. They also state that the operating margin has increased to "Over 17%". Let's take the pessimistic view that it increases to 17.1%. That will leave us with operating profit of 0.171* 933mn = c. £160mn. Making a simplistic assumption that the tax rate is 20%, that yields net profit of 160*0.8 = 128mn. Lets devide that through by the number of share in issue of c. 134m. That yields us EPS of 128/134 = 95p. You will note my estimated calculation is nearly identical to broker forecasts which vary between 94p-97p. Interestingly I can also estimate the book value of the share. To do this I take the operating profit we calculated of 160mn. Next I divide through by the ROCE, which is stated in the trading update will exceed 18%. Lets take the worst case scenario of 18%. 160/0.18 = 889. That gives us a rough estimate of the capital employed by the business. Dividing through by the no of shares in issue gives us 889/134 = 6.63 which is a book value of 663p yielding a price to book multiple of 835/663 = 1.25x! My calculations above ignore some more intricate financial details, but I have also taken the lower end of the reported figures to take a conservative view and therefore it is entirely possible that Ritchie could be leaving some further upside in the figures (wise to). On my calculations that would place Bovis trading on a PE of 835/95 = 8.78 and a price to book of 1.25x, with a dividend yield approaching 5%. Lets compare that with Redrow. We can easily adjust the PE to a TTM PE ratio so that the two compare the exact time period for the Twelve months to Dec 2015. To do that for Redrow we simply take the current EPS of 44.4p and add on 3p which is the difference between its first half EPS last year and its current first half EPS this year. That amounts to EPS of 47.4p. 406.6/47.4p = 8.6. We can conclude that the two builders are trading on near identical TTM pe multiples (8.6 redrow vs conservative estimate of 8.8 Bovis). Bovis however trades on a lower p/b with a higher dividend yield and a
Annual Report & AGM next week, which will hopefully provide a little support here. After that we have a 10.2p final dividend to look forward to. The ex dividend date being March 12th. Between those events BVS, TW and PSN report their full year results (and Bdev interims), which should be positive and hopefully provide further sector support. After that we have a trading announcement in May, followed by our very own half year results for the period ending April 2016, which should be released around June. This strong news pipeline should hopefully be supportive of the share price. GLA
Yes, it's disappointing but these are very volatile times. For what its worth, I think Crest has seen a larger drop today simply because it has remained more stable than other builders lately, so this larger drop is simply taking it more into line with the sector retrace. Probably lots of people who filled their boots at a fiver are offloading as they have been completely spooked by the fear tearing across all markets.
Probability of UK rate cut nears 50%! http://www.bloomberg.com/news/articles/2016-02-10/u-k-rate-cut-odds-approach-50-showing-doubt-over-carney-s-view
Redrow plc using EPIC/TICKER code LON:RDW had its stock rating noted as ‘Reiterates’ with the recommendation being set at ‘OVERWEIGHT’ this morning by analysts at Barclays Capital. Redrow plc are listed in the Consumer Goods sector within UK Main Market. Barclays Capital have set their target price at 569.7 GBX on its stock. This indicates the analyst now believes there is a potential upside of 39.9% from the opening price of 407.2 GBX. Over the last 30 and 90 trading days the company share price has decreased 43.1 points and decreased 36.9 points respectively.
Redrow doubles dividend after completions hit record high Redrow (RDW) did a little more than tick all the right boxes at the interim stage. The dividend payout was doubled, and the housebuilder has pledged to make a full-year payout of 10p a share - that's a two-thirds jump from the previous year. Profits rose to a record high, thanks to an 18 per cent increase in completions to 2,178. The government's Help to Buy scheme is taking an increasingly important roll in boosting sales. Legal completions secured in this way were 44 per cent of overall sales, compared with 38 per cent last year. The company's net debt grew from £154m to £183m, as over 5,700 plots were added to the current land bank (those with planning consent), of which over 1,500 were converted from the forward land bank. Overall, the total land bank grew by 18 per cent from last June to 21,435 plots. Strong trading continued after the period-end, with private reservations since the beginning of January up a tenth on the same period last year at 455. Constraints on faster expansion remain however, with around 9,000 plots tied up at one stage or another in the planning process. And while the number of apprentices jumped from 104 three years ago to 304, skill shortages are restricting output. Analysts at Peel Hunt forecast full-year adjusted pre-tax profits of £230m and EPS of 50.7p, from £204m and 44.6p in FY2015. REDROW (RDW) ORD PRICE: 413p MARKET VALUE: £1.53bn TOUCH: 411.5-413p 12-MONTH HIGH: 505p LOW: 279p DIVIDEND YIELD: 1.9% PE RATIO: 9 NET ASSET VALUE: 246p NET DEBT: 20% Half-year to 31 Dec Turnover (£m) Pre-tax profit (£m) Earnings per share (p) Dividend per share (p) 2014 560 91 19.9 2 2015 603 104 22.9 4 % change +8 +14 +15 +100 Ex-div: 18 Feb Payment: 31 Mar IC VIEW: Redrow was the strongest performer in the housebuilding sector last year, with its shares up by more than a half. Despite this they continue to trade on a significant discount to the sector on a price to net tangible assets basis, at 1.4 against a peer average of 1.9. With an improving dividend, that's hard to justify. Buy. Last IC view: Buy, 494p, 9 September 2015
Ironic how following your post your beloved TEF tanks a colossal 6%! I merely pointed out TEF looked expensive relative to peers, which it still does. I then bench marked it against Redrow, Gleeson and SMP all whom were trading at £4.50 at the time. Lets looks where they are now: Gleeson £5.80 Redrow £4.05 SMP £3.36 TEF £3.37 As you can see TEF and SMP have performed appallingly, crashing 25%! Gleeson has rocketed nearly 30% and Redrow sits between them having lost just over 10%. When we did the comparison you said if you had a theoretical 100k to invest you'd put it all in TEF. Had you selected a composite bundle of equal weighting of the above three the bundle would be worth an average of £4.40. That is a mere 2.2% loss compared to the whopping 25% loss you have instead suffered! You seem bitter that you have selected the worst performing share in the sector and now need to take your frustration out on others! Ofcourse, with hindsight we would have just put everything and the kitchen sink on Gleeson, but as it goes a composite bundle was by far the better option than gambling everything on TEF as you have done! Hedgefunds aren't shorting the entire sector, they are shorting Berkeley specifically as a proxy for high end London builds over fears foreign demand for is dropping off; demand in the regions is still extremely strong and builders would actually prefer a lower level of house price growth to create a more stable operating environment free from bubbles- any fear of a bubble will put people buying off until period 2, and that will create a self fulfilling prophecy and a property price correction. Better would be very slow house price inflation, just enough to offset build cost inflation. The top end of the London property market isn't linked at all closely with domestic demand across the country from owner occupiers, completely different kettle of fish.
Very strange day. The results were excellent and included better than anticipated growth in EPS, margins and a larger hike in the dividend than analyst forecasts consensus, coupled together with a bullish statement Despite this the share price at one point tanked nearly 10%! I managed to buy a few at £3.85 before the strong rally back to close above £4, but even so that wild swing was completely unprecedented given the results. Redrow has been more stable than other builders lately, so some of the additional downward pressure could be explained as simply catching up with sector wide falls, but this again doesn't explain the near 10% drop at one point. Maybe market makers were taking advantage, forcing the share price down further to set off stop losses and tricking PI's into selling. Just goes to show, in these markets, company specifics sometimes go completely out the window! I hope these concerns over global GDP growth blow over soon. According to Goldman Sachs the UK economy is the least likely developed economy to enter recession over the next 2 years with a probability of just 3%. A strong domestic economic backdrop combined with the structural defecit of uk homes and record low interest rates now expected to remain this low for years more should hopefully underpin construction sector stability, but ofcourse nothing is certain. GLA, hoping for a good day tomorrow.
Not a nice day at all today across the sector! Redrow again holding up reasonably well in comparison, undoubtedly due to its interim's tomorrow which should be very good given the statement at the AGM late last year. As I write the Dow is bouncing back from earlier heavy losses and FTSE futures indicate an opening of c. 0.5% up for the FTSE 100 (appreciate we're 250) tomorrow morning. That, and a strong set of interim's tomorrow will hopefully see us make some good progress back towards £4.50. Nige, I do like TW. but I sold out last summer as the growth prospects are now no where near as good as at my three favorites Crest, Redrow and Bovis who are all growing volumes significantly. TW has a soft volume cap of c.14k units which it is currently edging towards. After that EPS growth will be limited to margin growth which depends on continued upward house price momentum, improved product mix and/or a higher usage of higher margin-ed strategic land sites. Bellway again is a great outfit, but again the growth strategy is limited compared to Redrow, Crest and Bovis. When I have a bit more time I will illustrate the above with some figures. GLA tomorrow and over the coming weeks. Hold tight!
Hedge fund managers are taking short positions against the biggest listed provider of luxury London homes in a bet that weakening emerging markets will put the once buoyant sector into reverse. A small group of funds are targeting the shares of Berkeley Group, the main listed proxy for new high-end London property, amid signs that Asian and Russian buyers are deserting the market. Odey Asset Management, BlueMountain Capital Management and Anchorage Capital took short positions against the FTSE 100 builder in January, worth 2.2 per cent of its share capital, according to data disclosed to the Financial Conduct Authority. The short positions run against analysts’ consensus that Berkeley is well positioned to continue growing — and indicate the hedge funds believe pricing and transaction levels for luxury London homes have further to fall. The market for luxury London homes faltered last year after being driven upwards in the previous few years, partly by overseas buyers seeking a bolthole or a safe haven for their cash. Many foreign buyers have suffered from a weakening of emerging market currencies and an increase in stamp duty on expensive homes. Prices paid per square foot for homes costing more than £1m fell by 2.7 per cent in 2015 after two consecutive years of 10 per cent rises, according to the data provider LonRes. Anthony Codling, an analyst at Jefferies, the investment bank, said he had spoken to hedge funds looking to bet against Berkeley. “They think overseas demand is falling away and there are pockets of oversupply in new-build homes, which will reduce selling prices for Berkeley and bring their share price down,” he said. Berkeley’s shares have risen 25 per cent in the past year, fuelled by rising sales. The company declined to comment. About 54,000 homes are planned or under construction in the most expensive areas of the capital, with most of these set to be priced at £1m or more, research by LonRes found last year — even though only 3,900 homes worth more than £1m were sold in these areas in 2014. Mr Codling said he did not agree with the case for shorting Berkeley. The company’s shares are trading at 2.7 times book value after it set out a plan to pay out £16.34 per share in dividends by 2021. “As long as investors get that cash return I don’t see significant downward pressure on the share price,” said Mr Codling. Charlie Campbell, analyst at Liberum, said there were concerns that overseas buyers who paid deposits of 10 or 20 per cent on off-plan London flats might struggle to pay the balance on completion if their home currencies have since weakened.
I agree 9 Elms is having a negative impact on the share price here.. but my understanding was the concerns were mainly around residential units and SMP has a nice mix of commercial and residential development there. But I also agree that this is an over reaction and now bordering on lunacy! I'm not concerned though, as like others have said already, this is a longer term investment and I am sure we will bounce back in due course. Who knows when that will be, but I'm tucking these away for a good few years until the market gives us a sensible valuation.
M&G investments sold a steak that took them below the 5% level just 2 days ago. Today we get an RNS stating that they have purchased a load of Bovis taking them back over the 5% level! Very strange trade considering M&G Investments normally invest long term, although their trade over a couple of days did net them a profit.