Member Info for master_margarita

I picked this up because of the long drawn out base, but having looked at the financials I don't think it has ever earned its cost of capital in the last 10 years.

The dividends it paid during the 4 "good" years are less than the dilution during that time.

The operating profit in the most recent results seems to be before rent, so doesn't sound like an operating profit as I know it.

The company appears to be entirely value destructive. The "recovery" from covid will take them back to not earning the cost of capital. Can anyone on this board explain how this story can work out?

Hi strictly,

Thanks for the reply. Yes, my discrepancy with your numbers comes from the intangibles on Barratt's balance sheet, a reminder and scar of the Wilson Bowden acquisition in 2007.

I don't think you have to amortise goodwill in UK accounting - in the US it would be amortised over 15 years. I agree you are right to exclude it.

MM

Hello strictly,

I calculate the RR/BDEV entity a PBV of 0.94.

RR mcap 2.254b, book 2.02b

BDEV mcap 4.75b, book 5.4b

Combined mcap 7b, book 7.46b => 0.94 PBV

Hence I am not making switch yet.

I agree with moving from RR into Bellway as the next best housebuilder.

Right now Barratt/Redrow combination must be trading at around 85% of book value (?) - I think best to wait for a 10% relative move before I make the switch.

RIP Redrow, you were a loyal dog and didn't deserve to end this way.

Came here to vent my frustration. What is RR thinking selling out to Barratt? Who would want to own Barratt shares?

FWIW I think there is another 10% higher to go, but after that I'm out of this forever.

strictlybricks,

I created a new one. I tested it too, it does appear to work OK for me:

magma.birdie0b@icloud.com

MM

Sorry about that. I haven't got the hang of these disposable email address quite yet. I think it's fixed, can you retry?
MM

strictlybricks,

Yes, I would like that. It will give me a way to send you my 40y Bellway P:BV chart which I think you will find interesting and which shows what extraordinarily good value is Bellway today (not that you need to be convinced of this, but it is interesting and something I don't want to post on a public forum).

You can dm me here: goblet.rider0l@icloud.com

MM

strictlybricks,

It's a cool niche that you have there and I am impressed with the returns you have achieved.

In 2014, it looks like Bellway became 40% cheaper than Redrow (I haven't done the full calculation you have described, so this is an approximation). If you moved into Bellway when, say, a 10% relative cheapness opened up, do you just suffer as the cheapness gets more extreme and goes to 40%? Bellway did eventually reverse and become more expensive but you had to wait 9 months.

Also, I presume you avoid builders like Vistry which have materially lower bv growth and worse ROEs, meaning they should always trade at a lower premium to book value, although that would make them appear 'cheaper'.

Pleasure to chat with you. Good luck!

Tom

strictlybricks,

Thank you for your reply. It is always interesting to see other people's approach.

I have two questions... when you talk of book value are you refering to equity/net asset value in the accounts + EPS - divs, or are you doing something beyond my ability like trying to revalue land banks?

Secondly, what is your benchmark for fair value for, say, Bellway? Bellway has historically traded at an average price to b.v. of 1.35. It's currently 0.9, so is your 'value gap' 1.35-0.86 = 0.45? Redrow scores the same if you do the calculation - does that make them similar investments for you?

Back in the last crash of 2008, Redrow and Bellway were very different beasts. Both had debt but RR had a lot! Bellway had to cut book by 10-15%, RR by about 50%. Today both have hardly any debt and I just don't see how they could have big writedowns. That means they become bargains any time they fall below bv per share.

Right now Bellway is below bv... that makes it the bargain. However I don't have the energy to trade them, I suspect they will both do well, and I chose Redrow originally because I estimated that it was growing its book value a few percentage points faster.

MM

strictlybricks,
There is much to be said for clean accounting and management as you describe. However, when the share price is below book value (as is the case for BW, and no longer the case for RR) it presents a great opportinity for management to buyback shares.

For every share bellway were to buy back at 0.9x book, you as a shareholder as receiving 1.1x the cash spent, and on top of that you don't pay any taxes.

This time round RR is being smart, and share price is outperformng BW's for the first time in 20 years.

MM

Any other bulls started sniffing around this corpse?
Small net debt, 0.5x tangible equity.
Div has been cut to zero, and probably no profit for next 2 years so now just waiting for asset write down.
Cash flows historically better than earnings.

Anyone think this is worth zero? Think continuing price falls are longs trying to cut losses after massive pain.