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In PSN’s case specifically, it’s the lack of inventory (in relation to market cap) vs competitors that leaves it with such a poor P/B. I’d rather invest in a company that has houses ready to sell, personally, especially with a downturn on the horizon
Why are so many people so desperate for the SP to increase today? Ok, a higher SP means less dilution, but so what? All that matters for me is what’s in the ground, how quickly it can be extracted, and at what price we can sell it all for. Personally, I’d love to see this back at 5p, so I welcome a return of the de-rampers. Of course, I’d be loading up in that unlikely event. Moreover, a lower SP makes it easier for me to sit on my hands. In an ideal world, I’d love to see Morocco tested and sold in a single deal, so I can continue to sleep at night. Incredibly exciting times. Downside on the decline, and potential upside on incline… not a bad combination
This BB is incredible. Comedy gold and a wealth of knowledge. I’m a mere mortal in this sector, so I don’t say much, but I’ve been invested here for around 2 years I think, learning along the way, and buying more shares in every dip. It’s my lottery ticket (can’t find one with a comparable risk vs reward ratio). I must say, I’m very optimistic. I won’t be worrying about valuations however, until we at least know how much gas we’ve got, and how quickly we can extract it. Thank you all for your contributions, I really appreciate it
Feet,
What do you think the bottom will be form rival housebuilders? Say, Bellway and Redrow
Oracle,
You’re referring to asset price inflation. Rising interest rates, high consumer price inflation, falling household savings, low consumer/house-buyer confidence, no economic growth = asset price deflation. Furthermore, as Feet mentioned, you can throw house build cost inflation into the equation. Even with all the will in the world, how are most people going to buy houses in this enviroment? The question isn’t ‘are house prices going to fall?’. It’s ‘how much are house prices going to fall?’. This is what’s driving me crazy and I can’t say I have any confidence in what analysts are forecasting (anything from 5% to 30%, from what I’ve seen). 10%-20% is what I expect, but at which end of that spectrum is beyond me. Accordingly, I’m going to keep a sizeable holding, but I’ll certainly be prepared for a fall to a P/B of 0.5. I must say, after looking at some balance sheets earlier, I can see most housebuilders suspending dividends in FY25, and that will be accompanied with decreases in the valuation of assets, thus reducing NAV. While there’s a shortage of housing, I think it’s also prudent to consider the shortage of disposable income, household savings and affordable mortgage deals.
Lastly, thank you all for your contributions lately. Some serious value has been added to the BB from both sides of the debate
Feet,
I wasn’t investing in 2008 as I was 15, but I recall a great deal of economic uncertainty; much more so than we’re seeing today. Personally, I don’t think the current situation is anywhere near as severe as back then. It will take time for things to be resolved, sure, but there’s a pretty clear path out of this imo, so I don’t expect the market to become as fearful as it was back then. I think we’ll retest those levels that we saw in October 2022 (for my housebuilders, anyway) when the doomsday headlines start coming in thick and fast, but I can’t see us sinking much lower than that. If we do, I’ll be overjoyed. I fully agree on your thoughts on PSN. I’m going to get the calculator out in a bit and re-evaluate my weightings
Feet,
I think it’s highly likely that you’re correct in your assumptions. If I had to guess the bottom, I imagine it will be Q4 of this year or Q1 of next year. All it takes is some positive news on the outlook, however, and these housebuilders will rebound (like yourself, I do think this is unlikely tbh). I’m content owning shares at these prices though, although, as I’ve said on here before, I wouldn’t buy PSN right now due to the weakness of the balance sheet. I do however, think that PSN will offer the most upside once it finally bottoms out at peak fear. If PSN was what I wanted to own, I’d also be sitting on the sidelines, for now. I think a lot of investors are in denial, because they’re left holding the bag, and/or would like a dead cat bounce so they can sell. I’m certainly going to keep a nice chunk of cash for Q4 onwards. At 0.5 P/B, I’ll be doubling down on my HB holdings. You, and others have caused me to reflect though tbh. I’m probably a bit too heavy on my HB’s atm, all things considered
Steve,
I’m not contradicting myself, I’m hedging my bets. It’s called risk management. Inflation is a complicated game, and it could shift very quickly. Likewise, the govt could introduce a scheme that artificially inflates house prices (you know, as they often do). Fortunately, I foresaw this decline, so I only bought back into housebuilders recently, after selling during the recent rebound. Consequently, I have a low average and am only just in the red. A repeat of 2008 sees my HB’s bottom out at 30% lower than today (a p/b of 0.5), assuming no dividends are paid for the duration (which hopefully won’t be the case for my HB’s). A 5% dividend pa would reduce my downside to what? 15%? Vs upside of 120% upon recovery (excluding dividends). There’s no guarantee that a repeat is due, but it seems like a lot of investors are using 2008 as a guide, so I’m not ruling it out. I’ll continue to top up on the way down, cautiously. A fall to 0.5 P/B would simply see me trim other holdings and throw money at the HB’s
It astounds me how so many people are in denial about it the current economic situation and how this will impact on house prices. I topped up both of my HB’s yesterday, but I’m under no illusion that there’s more pain on the horizon. I’m just trying to hedge against the govt making a last ditch attempt to artificially prop up the housing market. Moreover, most stocks are overvalued atm imo. I think another 20% downside is likely in HB’s… maybe more
Avocet,
It’s well documented the banks have been lending irresponsibly since the govt lifted restrictions on them (the ones that were imposed due to 2008). The ruling classes like to buy property during times of crisis, so this cycle will continue into perpetuity, and our entire economy and monetary is based on debt, so where would our economy be now without irresponsible lending?
Blades,
You could spend £20,000 on a camper and sell it 5 years later for £15,000. £5,000 lost. Compare that to rent… you’d lose £5,000+ per annum. As you said yourself, some people can’t afford the deposit or they may have bad credit and so on. On a £200,000 mortgage @ 5% interest (on average), you’re paying £150,000 in interest alone. Let’s assume that house price growth tracks inflation, and we exclude disposal costs, maintenance costs and council tax etc. That’s £6,000 down the train per annum. Now, for reasons I’ve mentioned before, we have seen real house price growth in recent decades. Where is it going to come from in the future? Demand for housing and a shortage of housing doesn’t mean people can pay whatever they like for houses; it’s more likely to motivate them to look at alternatives. Many will even move abroad. Would I buy a house if I was in the 1960’s or 1970’s? 100%. Now? No chance; not unless I was renting it out on Airbnb when not at the property or renting rooms out. Compare the real returns on U.K. housing vs Berkshire Hathaway during the past 40 years, and tell me it’s the best investment a man can make
There are other options though; many of which are being explored. For example, living in a HMO (albeit, these are becoming stupidly expensive), living in a campervan, narrowboats etc. The rental market is a joke in many parts of the U.K, I agree. Both renters and homebuyers are paying well over the odds imo and I think in the latter case this stems from the false narrative that ‘my parents made a fortune on their house, so the same will happen for me’. From the 1960’s onwards, we’ve seen a huge level of market value appreciation in relation to salaries. Such a trend can’t continue. Taxation is forever increasing, the economy is stagnant, inflation is out of control and essential industries (energy and food, primarily) are holding consumers to ransom; the latter two are short-term. Will house prices rebound after their inevitable dip? Sure, but that’s the only stage in the cycle I’d consider buying something, but then again, the low point will likely be when interest rates peak, so that has to be factored in. In most cases I’ve looked at, homeowners have made narda when inflation, mortgage interest etc have been priced in. That’s not an investment imo, but yes, smarter than renting, at present
Blades,
I fully agree with the irresponsible lending. I don’t just read about it in articles, I see it with my friends (late twenties and early thirties). Many are racking up debt and remortgaging just to cope. Those who can hold onto their homes will… those who can’t however… we know how that ends. A lot of people seem to be in denial, like housing cycles don’t exist. However, this is (say from now until 2024/25) the time to invest in house-builders. History also proves this. That said, I wouldn’t invest in many of them at present as I don’t think the pain is priced in to all of them. Moreover, the likes of PSN imo aren’t underpinned by a strong balance sheet, so the downside is anybody’s guess. Bellway’s SP fell to around 50% of NAV during the GFC. That would see the SP fall to £13.50 today. I think the bottom will be more like £16-£17 this time around, although that could change very , very easily in either direction. Now imagine PSN at 50% of NAV. The million $ question is how painful will this get? I can’t see a full repeat of 2008 as there were many other issues at play and the recovery is still fresh in the minds of investors, but I wouldn’t be surprised if any of the HB’s fall another 30%.. some I can see falling 50% or more. When a share price is underpinned by the dividend, and the dividend is suspended, it doesn’t take a genius to work out that the SP will go with it. It makes no difference to me what people do, but there seems to be a lot of confusion as to why PSN is so unloved. To me, it seems glaringly obvious. I thought mortgages had reached around 7x annual salaries, but it’s a while since I looked at that metric. Either way, we are due a sizeable correction there, although every average Joe seems to think that buying a house is still the best investment. As both a surveyor and investor, I am 100% certain that is isn’t… not these days. Not even close, when you factor in inflation, interest on mortgage payments, disposal costs and maintenance etc
I’m invested in 2 HB’s myself. Neither of them PSN, primarily because the balance sheet here isn’t strong enough for my risk appetite and PSN typically sell to low income people who are currently being hammered by inflation. Of course, this also has an impact further up the chain. For me, it’s all about balance at the moment. Sure, HB SP’s could fall further, but in that event, I’ll be buying more shares. Will I double my money in 3 years? Imo, almost certainly, especially as I’ll be averaging down if SP’s do continue to fall… if they don’t, well, I’m already in the green, and I’ll be averaging up (once recovery is underway). While inflation is the main threat we face, at the first sign of real disinflation, these HB’s will soar. I do however believe that things are going to get worse before they get better, unless the govt design to introduce a new sexy scheme to artificially pump up the market. That said, I’d love for the share prices to tank. The more fearful the market, the more excited and greedy I become
Steve,
You telling me that some investors believed that the U.S govt were willing to allow the global economy to collapse as opposed to increasing the debt ceiling? Wow
Did not see a 5% rise coming out of nowhere like that. Around 80p is what I was hoping for, in order for me to buy back in, but this could always be a dead cat bounce. Anybody aware of the catalyst? Sitting on my hands, for now
Apendragon,
Is that you Jim Cramer? With all due respect, you’ve made some terrible investing decisions with Boohoo and Novacyt, losing a pretty penny in the process, so what value does your opinion have? Your comment isn’t even logical. I wish I backed the opposite side of your previous trades. Might have to increase my weighting if you’re this confident in Mondi’s alleged demise. My advice: stick to playing Dungeons & Dragons. Are you shorting Mondi?
Billybob,
Again, very valid points. Once cash flows improve and CF is debt free and in the 250… wow. If I was a buy and hold man, I wouldn’t be sweating over the future, put it that way. I imagine the net debt will be gone by then though, I must say. I also think they could increase prices, but I think you have to trust the management team on that. Supermarkets are starting to offer better deals on cards, so I think CF has to increase prices cautiously. Ideally, I’d like to be back in before the end of the calendar year for that very reason, even though I personally don’t care for dividends. I just think it will reduce the volatility here and attract new investors, sending the share price up
Tories,
I won’t name all my holdings as some have small market caps and I’m still adding to my positions as I earn money. I actually opened a new position today in a stock that I sold earlier this year, so I have 7 now. 6 of my stocks are U.K-based. I’ll list some below:
• PRD is an educated gamble; gas & oil exploration. Could go to zero, but could also put my in a situation where I become a full-time investor/dosser, and soon. Risk vs reward justified as I’ve only invested 7 days of wages (after tax) into it.
• Porsche Holdings SE (not Porsche AG!). Around 100% upside imo, whenever you like, but it requires thorough research. The RNS’ are the only place you can find accurate information, as the share structure is often misinterpreted. My advice: ignore the balance sheet and instead, value their holdings separately (mostly VW and Porsche)
• 2 housebuilders. Do your own research here. Steve owns PSN I think from memory. For me, it’s number 3, but I fully understand why somebody would prefer PSN, as on earnings alone, the last time I looked (a few weeks back) it offered the most upside. I do think it offers a lot more downside than the two I’ve opted for though, due to differences on the balance sheet. I’m bearish on the housing market btw, so I’ve been trimming on the way up.
An interesting industry to look at atm is media. Some good value on offer there, but study those cash flows as RCH caught me out when I first started investing. Luckily though, it caught the market out as well, so I made about 550% from my first buys to when I sold the lot in one swoop. The p/e was 2 when I bought in, so for me, it was a no-brainer. I wouldn’t buy back in now though. The consolidation of the newspaper companies offers several opportunities, although I don’t own a media company atm. I am watching closely, however.