Member Info for londoner7

My assessment is based on same again flat growth in mineral product sales (MPA) The head office overhead following the HOPE acquisition was cut early in H2 and is apparent in final head office costs running at �4.5m in H2 after �8.1m in H1. I doubt this is a clean number but I suspect reduced head office costs will be a significant component of 2018 H1 margin comparisons. The impact of the H1 works on the Hope Cement plant should also be reduced in 2018 - due to reduced works and integration of the import terminals. I anticipate >13% EBIT margin during H1 and >14% during H2, resulting in a 13.5%-14% full year EBIT margin. Organic revenues last year were essentially flat due to eliminations (internalisation of aggregate and cement), reported as 19% (+3%) on aggregate and 41% (+4%) on cement in 2017. This process will continue - it�s a significant input to margin improvement - but perhaps not at the pace of 2017. Therefore, I pencil in 3-4% on revenue (including the contribution from the Humberside acquisition). I have no insight into the drivers of almost 50% of finance charges, covering provisions and leases etc., but assuming same again on these I anticipate an interest charge for 2018 of �4.4m. Putting these numbers together I have Revenue �672m-�679m, EBIT �91m-�95m and EPS 4.8p-5.0p. Current analyst consensus is for revenue of �697m, EBIT �87m and 4.52p in 2018 (before these results). On the call Breedon management said they are comfortable with the concensus EBIT number. They said the same last year about the consensus number of �74m for 2017 EBIT. The final result was �80.4m. So it's fair to say Breedon guide conservatively. The presentation includes a good slide describing the flow of product (slide 23). Londoner7

beat analysts forecasts but shy of my numbers from last July. "So given a 2nd half recovery in the Hope margin I�ll stick with my 12.5% margin for the full year. However, my revenue forecast needs another look. My last forecast of �674m is bang in line with consensus, but I hadn't accounted for the extent of the eliminations. I suspect the Hope shutdown will impact profits rather than revenue so I'm cutting my revenue forecast for 2017 to �665m. Keeping my forecast for interest costs at �5.7m, and including the recent warrant dilution my forecast for 2017 EPS is now 4.3p." I was 2% off on revenues. As I expected the level of internalisation was difficult to judge but some additional information in this years report should make future predictions easier. Net interest at �6.4m was close. Margin 12.3%. In spite of missing my 12.5% I view this as a great result after 11% in the first half - points to 13.6% over the final 6 months, which bodes well for this year and the 2020 target of 15%. EPS 4.14p, so off by 3.7%. Good commentary on outlook and particularly like the prospect of the new quarries and investment driving margins this year. Finally, no financial impact from Carillion! I'm looking forward to this morning's call. Londoner7

Incomes inline with my expectations, but better debt reduction and free cash flows - guess currency exch helped here. Nice pop first thing for some trading profit but happy to retain a core holding based on this update. The SP came back during and after the analyst call. The main focus of Q&A was on margins and management were not saying much other than margins will be up on an interim basis against 2017 and at the finals, which suggests to me 2018H1 margin may struggle to beat 2017H2 but will be up on a year on year basis. Cap Ex is a key element. Expected to be up �10m on 2017. The average chipsets are up significantly on just about every big jet programme. No doubt these require new production lines, hence the cap ex increase. Key to future margins is the extent to which additional volumes can be covered by existing lines. So stating the obvious it's all about margins, margins and margins. Higher margin downstream oil/gas should be an additional kicker 12-18 months out. Londoner7

spogbat, I also have some reservations. I hope they are very selective but I would add the Whitemountain segment to your list. That said, Breedon management have been effective so far in their acquisitions strategy so I guess we should trust their judgement. We still have the tarmac asset swap going through - invitations for comment to the CMA closed last week. And I suspect there are others in the pipeline. Londoner7

I'm just hoping the chunk Breedon are looking to acquire doesn't result in another dilutive equity placement not open to the smaller private investors. I estimate the group to be valued around �600-�700m with parts of interest to Breedon accounting for more than half of this value. I hope Breedon are not moving up the construction supply chain beyond concrete blocks. Londoner7

Assuming it is a rights issue. Based on 83m shareholders, shareholders will pay �1.81 for each share they own in the �150m rights issue - excluding fees. This is to cover the NEAR TERM cash demands due to excess cash payments on AWPR. This �1.81 per share will be returned to shareholders in 4 dividend payments over the next two years. Let's be clear, management's view is that withholding the dividend over the next year or two does NOT meet the near term cash demands without constraining the other segments of the group. If I take up my full rights I am still awarded the same entitlement to earnings (% terms) and the dividend paid out at 2x cover. Based on FY broker consensus the interims were a beat, so I think 180p (on pre rights shares in issue) rather than the 170p consensus (pre exceptional) for FY is achievable. If my earlier outline of 20% compound is achieved then FY19 produces equivalent 216p in earnings and a dividend of 108p. So by Nov 2019 I will have been returned (equivalent of) 198p in dividends, i.e. more than my rights subscription. Another way to look at this is that I'm not getting any dividends for two years, and in addition I'm loaning GFRD 181p / share for >5% pa return over 2 years. I would then enter 2020 squared up on my rights payment and with the same share of GFRDs earnings as I hold today. Albeit (I repeat to make it clear) at an effective loss of dividends for 2 years. I won't embarrass myself by posting my expectations for 2020 earnings and dividends, but by my estimates the current share price looks good value over 2-3 years. Accepting GFRD achieves its own expectations; can anyone see a flaw in my assessment? Londoner7

"Is the figure 150 million firm or tentative? Or just testing shareholder reactions?" PAKKA, there may be an argument for a lighter figure but unless the difference was significant I doubt it would be worth arguing about. I suspect the market will go with managements �150m figure. I'm just running some numbers and I'm concluding that because of the expected high dividend payout over the next couple of years I don't think this rights issue - and hopfully that's what it is - is such a big deal. I'll post my assessment shortly. Londoner7

word limit!!! As Strictly pointed out GFRD have been too generous in recent years with their dividend and as we now see left no margin for error in their balance sheet. But I'm writing this as the reflection of a long term holder which I have not been. GFRD has got itself into difficulty and has been hit hard by the market. If it hadn't been for their difficulties I would not have been aware of the potential of P&R and a recovery in construction. I didn't get in at the bottom but I'm happy where I am. Was Tuesday the bottom? Who knows but I firmly believe that the scale of the market reaction was out of proportion and a blow off is often a buying opportunity. As to the detail of the capital raise, I do wonder what it is that HSBC and Peel Hunt have underwritten, and what was revealed to analysts at the 7:15 call that other investors didn't get to hear. Londoner7

I read the news on the capital first so my reading of the interim results was tinged with a feeling of if only. I did not see this capital raise coming, but I guess some in the market did, which would explain the 20% pull back AFTER the initial impact of the statement on covering Carillion's cash costs. I guess the possibility of a capital raise was dawning on the smarter elements of the investment community or perhaps there was leakage from the underwriting houses - I can�t believe I could be so cynical! But then on Tuesday, as another poster here pointed out, the price fell to FULLY reflect a �150m capital raise. Which begs the question, what was the 34% fall from last Feb (1500p) to Tuesday�s (987p) all about? To me that made no sense and prompted me to fill my position to my 50% target stake (including the expected capital raise). That�s a 50% stake rather than a full stake because attracted as I am to GFRD;s prospects I'm wary of the sector generally. There are other sectors I'm more comfortable with but the GFRD value proposition is too good for me to resist. Time will tell. And no doubt Strictly will be watching ;-) Back to the capital raise, and why it seems so obvious in hindsight. In the Tuesday call the management seemed very cocky and blase about the market response to what the CFO described as TWO pieces of good news. Only an accountant would see a forced capital raise as good news. Maybe he needed something to fill his weekends! This clearly irritated one analyst who rightly gave them both barrels with a reality check. What if investors do not feel inclined to stump up �150m for your expansion plans, but prefer to slow them for the next 12 months� A good question but in my experience management will get their way. However, perhaps the �150m may be scaled back. The same analysis (I wish I caught his firm's name) extracted good insight into the cash flow issues which I had missed. As reported 15/1 Carillion still owed �60-�80 cash to complete the project. This meant that the 3 partners needed to stump up between �180-�240m. With Carillion's collapse GFRD now needed to stump up half, i.e. �90-�120m between 15/1/18 and the completion of the project this summer. I had focused on the extra �30-�40m share rather than the full story. This is why I think questioning the dividend payout is wrong. In cash terms, even over the full year, it only accounts for 1/3 of the cash required in the next few months, so stopping it doesn't change the argument for the capital raise. It never made sense to me that alongside the growth projections in the 2021 strategy GFRD were planning to cut the cover from the current 1.6x to 2x by 2021. IMO the dividend should have been held over the last two years until the cover reached 2x and then increased alongside growth in earnings. As Strictly pointed out GFRD have been too generous in recent

I've been travelling so for what it's worth my late take on Weds updates. First the results and my takeouts: Linden Homes - gross margins flat to slightly down, but net margins slightly up and taking the change in land sales into account net margings up by 2%. A very good result and some land sales expected in 2nd half. OP up 8.7%. Construction margin 0.9% (pre exceptional charge of �25) showing good progress towards 2% target for 2021 but highlighting the impact of a single bad project amongst the hundreds they are operating albeit not on the scale of the AWPR. Any exceptional costs in the construction segment after the completion of AWPR will (should) be taken badly by the market. P&R - more than doubled OP on higher overheads, which have been raised to support growth in the business. 400 people currently and targeting 700 by end of strategy period. Order book up 40% on same time last year. P&R and the prospect of a recovery in construction margins is the reason I'm invested here. Given the continuing benign policies in the housing sector, e.g. governement support through Help to Buy and low interest rates I'd expect Linden Homes to maintain a full year 10%+ growth pa. The risk to the sector generally would be a general election - political suicide for the tories to call one but "events dear boy, events". While P&R only repesented 8% of Linden profits last year it looks on course to represent 22% of Linden profits by 2021 with construction about the same. This is why I prefer GFRD to a pure private house building play. Interesting comment on land values. Prices are not increasing as they typically do at this stage in the cycle so little to be gained from holding a large land bank. Indicates there is little competition for land and suggests to me that the relaxation of planning restrictions is finally having an impact. No doubt comments of "use it or lose it" also have a part to play in land demand from the builders. Back to GFRD. Group costs are coming down. Looking to 2021, CEO guided higher on P&R target revenues (let's say 10% higher) and higher end of 6-7% margin range, which points to �49m OP. With �39m-�58m for construction and a steady 10% pa on Linden, alongside stable group overheads and finance charges, GFRD would be looking at >20% compound earnings growth out to 2021 IF things go to plan. It's the IF that needs to be discounted. Note I said earnings not EPS. GFRD blotted their copybook with the proposed capital raise. I'll come on to that later. Londoner7

I think the issues around Carillion and any likely impact on Breedon were well covered a month or so back. A poster also reported that he had emailed Breedon and received a response to say Breedon had no comment to make on any impact. My conclusion from some (IMO) well informed posters, was that there isn't any significant financial impact. Breedon is contracted to supply building materials to the AWPR. BB & GFRD are required to cover any shortfall in Carillion payments. It is important to make the distinction between this AWPR project and other Carillion projects where there are not other partners to step in to cover Carillion's collapse. Perhaps Breedon supplied some of these projects but judging from the nature of Breedon's business model outside of Scotland these are not likely to be significant. I assumed yesterday's fall was linked to GFRD's to Carillion so perhaps still nerves around. Results due 7th March should clear this up. Londoner7

Hi Strictly, Thanks for your response. I've only just picked it up. I've been on the road and while I was aware of some turmoil in the markets I didn't look into it. I heard it described today as a pullback in optimism. Seems fair and hardly surprising. Even for those of us that have seen this many times in the past it never fails to surprise how widespread these pullbacks can be when they finally happen. I see some opportunites but for the moment further investment in GFRD is off my radar - happy to sit on my current stake. Back to your response. Thanks for your comments and insight. None of it warrants any disagreement from me and you seem to have a clear plan for your own strategy - come what may. I don't have any strong interest in builders so I'm not going to take up your invite to the blog. Life's busy enough as it is and believe it or not I don't go out of my way to be contentious - inspite of my political views on land tax etc. But thanks for the heads up on Telford wrt social housing. I'll take a look at them and the forum here. All the best, Londoner7

Strictly, I think we can agree the past is history and that current pricing and future prospects are the relevant factors on the investment case for GFRD. I would add government policy to the mix - as someone soley invested in house builders I'd guess you are also alert to this factor. It's good to have investment rules and if you are going to focus on a metric amongst house builders then value appreciation in the balance sheet is as good as any. But strict adherence to a metric will occasionally throw up anomolies. I'd argue that your exclusion of intangibles weighs heavily against GFRD as intangibles account for 50% of their fixed assets. As I understand it an acquisition (which typically comes with intangibles) will always have a negative impact on your metric. But if it removes the likes of GFRD from your pool of options I guess that isn't a problem as you still have a large pool to fish. I recal you saying you trade between builders according to their relative price to your metric. But what happens if/when the whole sector turns. The industry is cyclical and in the UK driven by interest rates and government policy. So I wonder what are the indicators you are looking at to exit the sector completely? In looking at Bellway I noted they lost 80% of their value peak to trough in the financial crisis and they were one of the better performing builders. I wouldn't expect a similar crisis anytime soon but black swan events happen. In the absense of such an event hitting interest rates I can envisage a change in government and or policy being a real possibility. Note the recent comments this weekend on Labours plans. Even some conservatives are mooting the public contruction of circa 100K houses. If this was to occur I'd be surprised if it didn't also include the acquisition of cheaper land. While the full impact on the house builders may not be easy to predict over the long term the immediate impact on the share prices is predictable - negative. But back to GFRD. There is a move towards the likes of housing associations and others becoming more involved particularly at the affordable end of the market and GFRD's P&R business segment is aligned to this. It may not be a step change due to a policy but it has to happen soon if we are to approach 300K house per year. The private builders have clearly demonstrated their model - tight control on growth and capital returns to shareholders (and CEOs). In politics I'm right of centre but I believe in the need to build many more houses and if the market isn't building them then somebody else must. I'm also an advocate of land value tax, and while I would never vote for a socialist government a policy introduction along these lines would make me smile. Opps getting off message. The market is forward looking and one day this year a line will be drawn under GFRD's legacy construction projects. >2% margins on construction look feasible a couple of years out.

GFRD, after rights share price 381p. Sept 14, 1224p for 26% compound over the subsequent 5 years. Best Bellway 5 year period, 10/2010 514p to 10/2015 2616p for 38% compound p.a. Same period GFRD 276p - 1462p for 39% compound p.a. However, GFRD had peaked 3 months earlier at 1775p for a 48% compound p.a. over the 4 year and 9 month period. I have excluded dividends but GFRD were paying a significantly higher dividend than Bellway during this period. I'm not aware of any capital events during the comparison period but if I've missed one, it will of course impact my numbers. Londoner7

Continued .... Now to more recent history - June 2015 marked the peak in GFRD's share price, while Bellway has continued to climb. GFRD peaked at a PE of 15.2 which to me seems toppy for predominately a house builder. At this time Bellway were on a 11.5 PE � apparently better value. (Okay Strictly, I know these aren't your preferred metrics but you get the gist of it.) I can't pin the beginning of GFRD's fall from grace to anything other than a general view that the legacy contracts were becoming an issue, the aborted bid for Bovis, Brexit and perhaps a market view that after a good run GFRD's stock was expensive. The substantial legacy contract losses and the Carillion effect took hold during the first half of last year and GFRD have been out of favour since then. Is GFRD stock now a buy? Possibly. Is GFRD stock doomed? I seriously doubt it. Will the market offer a better price? Perhaps, but I took a bite this afternoon. Will I take more? My main concern is the house building sector generally � no offence Strictly � I'll outline my concerns and queries in a follow-up post, maybe over the week end. All the best, Londoner7

Arhh! Strictly, you were doing so well but then launched into hyperbole again ;-) "In 2007, Galliford were short on dosh, so they did a share placing.... 100m @ 150p a share. Three years later, they did a 10 for 1 share consolidation, so the poor saps who bought into the share placing were now in for 1,500p a share. To mitigate this, and now needing to raise yet more money, they did a 7 for 6 rights issue @ 285p a share. My schoolboy maths may have this wrong, but I think that boils down to an overall net cost for the folks with the 2007 placing shares @ 855.17p a share. So, if they sold now they'd have about an overall 28% return on their capital for having it tied up for a decade, plus of course the dividends paid over that time. So, it's not the end of the world, but neither is it impressive - especially when put up against the rest of the house builder sector." Strictly, thanks for the history lesson but let's examine this period in a non-emotional manner. In 2007 GFRD did a share placing to acquire Lindon Homes. This turned out to be the pre-recession peak and investors got canned. In Sept 2009 GFRD did a combined rights issue and share consolidation to gear up for expansion of their housing activity. The rights issue was light � to be precise, 39.4% ex rights discount, so pre-rights you own 6 shares @ 397p and post after paying 285p for 1 share you own 7 shares @ 381p. The share consolidation is a non-event in terms of performance. Unlike the 2007 contingent, investors in at the rights did well. Five years on the share price was 1224p for a compound return of 26% p.a. not including dividends. Investors must have been furious! ;-) Of course it's all relative so how did other builders do? For comparison I've looked at your benchmark Bellway. To give the benefit of the doubt I have selected the best 5 year period Bellway have had since the financial crisis. It is Oct 2010 � Oct 2015 when they returned 38% compound p.a. Very impressive but how did GFRD do over the same period? They beat it with 39% compound - honestly I'm not making this up, and in addition GFRD were paying a higher dividend during this period. But there's more. GFRD actually peaked 3 months earlier when their compound growth rate was 48% over the 4 years and 9 months period. (I'll post my numbers in a follow-up post) Okay, I'll stop there before I launch into hyperbole. My claim isn't that GFRD are a great company, or even that they are a better investment than Bellway (Bellway performed much better during 2008), but to point out that GFRD has produced very good returns in the past and inspite of current difficulties at the right price may do so in the future. To be continued ....

"Does that effect the 40m hit, or is that 40m as a consequence of the shift in timeline..... no idea, I hope the former." philpot1001, I'm assuming the �40m is from an earlier post of mine. All I can say is that my estimate of a �40m exceptional hit is based on the �60-�80m payment that Carillon was due to make and that any shortfall would be make equally between the other JVs. I'm assuming worst case - and there are no additional returns which would otherwise have been due to Carillion. Galliford went on to say that they looking to minimise the impact of carillion's collapse upon the project. Maybe initial estimates are for an additional delay but in relation to another supplier I'm invested in a mid 2018 project closure has been the estimate for a while, basically since they missed a weather window in the 2016-2017 winter. No doubt Galliford will reveal more with the interims in a couple of weeks. Londoner7

�some mythical headline EPS figure that, for every year over the past six years, hasn't matched up to reality...� Strictly, this is the main comment I took issue with. What I called hyperbole. I addressed other parts of your post which you haven�t commented on. Feel free to come back on those if you wish. On the �hyperbole� you replied with some background on your personal investment strategy, Bellway, and a metric you use called BVPS. You present a list of numbers comparing your BVPS with the Galliford�s adjusted EPS figure. Well I agree that for every year neither match, but for the final year the EPS is above the BVPS so on that point alone your statement is misleading. I only have data for the last 5 years so taking that period the total EPS figure is 94% of the BVPS. In my book not hugely different. Mythical? The EPS is the post tax profits divided by the weighted number of shares in issue. It is a well understood metric, which can be manipulated to a degree from one year to the next but unless there is fraudulent accounting an accurate figure will come out over a longer period. A dodgy aspect to the EPS figure is to present adjusted values which add �exceptions� to the basic value. This is a reasonable practice but it is for the investor to judge for themselves what are exceptional and what appears to be a regular part of the company�s business. In Galliford�s case it was only in the last year of the recent 5 year period that a significant exceptional item was introduced and that was for the legacy contract linked to Carrillion. So I guess the issue is do you consider all EPS values to be mythical or just Galliford's. Best, Londoner7 ps There are other areas of the house building sector I�d be interested to discuss, as house building is a large part of Galliford�s business, and it�s your area of specialisation, but that�s for another post. I am glad I focused on my Portuguese homework. My tutor (H)elena (don�t pronounce the H) is a brutal task master.

Strictly, I started to reply but decided it will require more effort than I can afford at the moment. I have homework for a Portuguese class that's more urgent. I'll pick this up again Thursday. In the meantime after my post I listened to the web cast of GFRD's finals (last Sept I think), including the Q&Q which is often the most informative part. It's annoying that some companies delete this section from the play back - something to hide I guess - but not GFRD. Anyway, I was encouraged by the presentation. More Thursday. Best, Londoner7

strictlybricks. I wouldn't disagree with the numbers you present but your presentation is selective and I think the hyperbole in your last paragragh is inaccurate. In the latest financial year GFRD took a �90m impairment against profits for the JV contracts with Carillion. As a result of this the actual (basic) EPS is 60% below the adjusted EPS. In the precceding 4 years (according to the accounts I'm looking at) the basic EPS essentially matched the adjusted figure. So your presentation is misleading to merge last years numbers with the preceeding two years. As a consequence of the Carillion failure it is likely that GFRD will take a �40m charge in the current year. In which case you are right that this year basic EPS will fall well below the forecast adjusted EPS. But if you want to inform investors on this board why not add that detail. Your right to highlight differences between basic and adjusted earnings but the hyperbole isn't helpful. My monitoring investment is now �70 down! It's killing me ;-) But I'm still watching and learning. Best, Londoner7