Member Info for Meconopsis

This on Morningstar - https://stocks.apple.com/AmrZaoLM_SwivEfGTMncQWg (apologies, this is an Apple News link as I can't find it on the Morningstar site, so can't do a direct link)

"No-moat Barratt Developments' shares remain appealing, offering attractive upside of around 22% relative to our unchanged fair value estimate of GBX 700. We think recent U.K. interest-rate dynamics and the late 2023 improvement in sales activity recently disclosed by its homebuilder peers no-moat Persimmon and no-moat Taylor Wimpey bode well for Barratt Development’s earnings outlook throughout the remainder of fiscal 2024 and onward. With U.K. housing market conditions retracing their cyclical nadir in 2023, we continue to expect Barratt’s earnings to bottom cyclically in fiscal 2024. We forecast Barratt to deliver 13,215 homes and a pretax profit of GBP 325 million in fiscal 2024, with earnings to progressively improve thereafter.

Investor sentiment for Barratt and its U.K. homebuilder peers has improved dramatically in recent months, responding positively to the marked drop in U.K. interest rates in mid-December 2023. Indeed, Barratt shares currently trade some 38% above their recent low in late October 2023. Nonetheless, Barratt and its peers trade on still depressed price/book multiples—relative to their historic norms—that do not adequately factor in our upbeat long-term expectations. We expect demand for new housing in the U.K. to remain robust over the coming decade with Barratt Developments ideally positioned to benefit. Specifically, we forecast an approximate 250,000 new homes will be constructed annually over the coming decade in Great Britain to meet the incremental demand for housing as its population ages. Our housing demand forecast compares favorably with the prior housing cycle, sitting about 9% higher than the average of about 230,000 new homes that were constructed annually in the U.K. over the 2013-22 period."

"In comes blogs, eyeing up £1bn in the bank, offers 50p over share price to agree the buyout… paid for by our cash in the bank. We would sell!"

Which is why it's not generally good for companies to have excess cash in the bank.

“I didn't think the TW. TU was good.

The figures from the TU shows how the housing market/HBs remains weak and uncertain.”

sst1 was spot on. I don’t think PSN’s TU was any better.

Up more likely than down, but being mindful that the market has already priced in a lot of expectation - so there’s a risk that a really bad trading update would take 20+% back off prices.

Personally, I wouldn’t add to my position at these prices if I needed the money in 18-24 months. It was a much easier call at the price I bought BDEV for.

Stt1 - your statement on Home REIT needs moderating by highlighting that they are VERY distressed sellers of homes - having lost what they believed to be secure large scale tenants. The following headline sums it up - https://www.insidehousing.co.uk/news/fifth-charity-client-of-under-fire-homelessness-investment-fund-goes-bust-83097

You can’t equate a distressed sale with the state of the housing market for house builders. There is no comparison.

The market for house builders is tough - there’s no denying that. There are plenty of smaller house builders going out of business. But the established names have all been through this before - and the benefit of most of the house builders not having a high turnover of staff is that most of them have been through this before.

They do ned to conserve cash -and that is what TW are doing. Most of the spend above their c£40m running costs was to pay existing land creditors. PSN is being more aggressive in continuing to buy land - presumably on the expectation of buying it more cheaply because the other HBs have retrenched.

I don’t know where you get the supporting evidence for there being “a huge debt crisis”.

The reality is that COVID exasperated a wealth gap between those with money and those without. My neighbours have around £7k extra to spend a year as they no longer have to buy season tickets and can spend the day working athleisurewear. Items the people with money that buy new builds and there is still quite a lot of money around.

My view is that the issue for house builders is that the general housing market isn’t moving very well. People with homes are tending to hold off moving. And moving has become really fraught. I’ve just bought and sold places for my parents and my trusty solicitor, who I’ve known for 15+ years, tells me that near 60% of chains collapse at some point due to mortgage issues - compared to 10% in normal times.

It’s not an easy market. But it’s not apocalyptic. As the old saying goes, (with the exception of the Dutch and Maldives, they are making land any more and the HBs are sat on the largest part of the immediately viable stuff.

The question is whether we’re at the bottom of the cycle yet. (I think yes.) Do the house builders were invested in have the nous to manage through this without becoming overly distressed sellers. (Again, I think yes.) and do they have sufficient cash. (Almost certainly yes.)

The macro environment is improving and the election politics will help house builders.

One thing to remember about interest rate cuts is they take effect more quickly than interest rate rises. If the interest rate falls then you can make a choose to remortgage to a lower rate. You don’t do that when rates rise.

Dividends are going to shrink in the short term, but most of that is priced in.

“May I ask, how much of the sector have you investigated?”

Evening Crossley.

I had a good root through all the house builders when I bought into BDEV, which I did on the strength of the balance sheet and the fact that there was a whopping discount to NAV. Given the choice, I also think you’re better choosing a “premium” brand over a non- premium one - so I discounted Vistry at the time because of the Bovis brand. My view is that, if you’re premium, then you can more easily move down market if distressed than move up market. I also liked that BDEV had survived COVID without drawing on the furlow scheme - it shows corporate discipline.

I discounted PSN at the time because I didn’t think the dividend policy was sustainable - and the belief that the shares would take a hit when it was made more sustainable. TW was my second choice of investment.

My position in BDEV has now become too big - so I’ve split a chunk between PSN and TW. I think that PSN is the most undervalued of the two, but it’s higher risk than TW. Certainly, I prefer the shape of the TW trading update.

I’m expecting all three companies to make a 30-40% cut in dividends this year, which I’m happy with. I’d actually be concerned if there isn’t a big cut.

The motor finance decisions...

https://www.financial-ombudsman.org.uk/decision/DRN-4188284.pdf

and

https://www.financial-ombudsman.org.uk/decision/DRN-4326581.pdf

I do feel that Money Saving Expert are being more than disingenuous in how they are reporting this - https://www.moneysavingexpert.com/news/2024/01/car-finance-misselling-claims-complaints-paused-regulator-concer/

"I’ve done back of the envelope numbers and at the top end this could be PPI-type scale (that was £40 billion)...

...The pay out would be either the interest on loans (which is big), the commission (which is big), or the whole loan (which is huge). We're possibly talking thousands back for many."

If you look at the decisions, this isn't a case of mis-selling in the sense of repaying all premiums. It's a case of having treated some customers unfairly and having to repay the difference in the interest rate between what was paid and the best available rate at the time.

Not insignificant. But not a PPI scale thing.

"Unlike its peers, the FTSE 250 firm remained active in the land market despite the market uncertainty during 2023, securing 13,067 plots, up about 53% on the prior year."

The statement about inactivity isn't accurate. From PSN's trading statement...

"Land spend for the year was c.£430m (2022: £664m) of which c.£260m was the settlement of land creditors (2022: £207m). Our owned and under control land holdings stood at c.82,200 plots at 31 December 2023 (2022: 87,190 plots)..."

So, c£170m spent and a net 4,932 added.

And from TW's...

"Our strong land position enabled us to continue to be highly selective in our land buying during the year and as a result, 2023 approvals were significantly lower, at c.3k plots (2022: c.7k)."

Vistry is certainly using the fact that its partners forward fund development - and hence has a much more reliable cashflow - to secure land whilst prices are distressed. And/but TW are sat on 142k potential plots in addition to the c80k short term plots.

What IS impressive with Vistry is its forward sales position.

Saying all that - Vistry's new business model is interesting and something that I'd missed.

“Vote Labour Live Longer”

Vote Labour. You may not live longer. But it’ll certainly feel like it.

An interesting factoid here - CBG is 86% owned by institutions (https://simplywall.st/stocks/gb/banks/lse-cbg/close-brothers-group-shares/news/with-86-ownership-of-the-shares-close-brothers-group-plc-lon/amp) - so maybe an institutional exit?

With that level of concentration of ownership then any significant sale is going to have an outsized effect on the share price.

Thoughts?

This will be helping - https://www.theguardian.com/business/2024/jan/11/bank-of-england-may-cut-interest-rate-sooner-after-surprise-inflation-forecast

This is what happens when there’s no news…

SIDI - “…a nice 5.4% profit as I type on TODAY’S BUY”

I must admit to being surprised by the level of increase in the share price today. The announcement was “we appear to have bounced off the bottom of the cycle” type announcement and I’d assumed that most of that was already in the share price. But what do I know!

. TW. Are doing an update tomorrow - so we can probably expect another 1-2% if the news is similarly ok.

My view is that we’re in line for a fairly hefty dividend cut given the cash burn. In their position I’d be looking to conserve cash.

But again. What do I know!

Thanks londoner7 - I’ll take a look, although I'm a Mac user - so that might throw up additional barriers.

Appointed joint manager in 2015 after 5 years as deputy - so joined SMT in 2010. So 13 years:

- 5 as deputy

- 7 as joint manager

- 1 year as sole manager

23 years working in the investment company.

It really is hard to see how he’s at all qualified to do his job… ;)

There is a fee for the repurchase, but not the sale. And you have to pay stamp duty. But you’d have to do that anyway.

Here you go ash - https://www.ii.co.uk/ii-accounts/isa/bed-isa

They do a sale and repurchase - but it’s as near instantaneous as possible and limits the impact of market movements.

Ash - II have a bed and ISA option - you can transfer the shares into your ISA for no fee.

"I can't defend the indefensible that Slater's track record since his joining the trust to date"

It's worth picking this up....

"Tom joined Baillie Gifford in 2000 and became a partner of the firm in 2012. After serving as deputy manager for five years, Tom was appointed joint manager of Scottish Mortgage Investment Trust in 2015." He then took over as manager in 2022.

So, that's 12 years working on SMT.

You make is sound like he just arrived.

Ash - you could always transfer your trading account in specie (i.e. without selling and rebuying) to II; then Bed and ISA them into your ISA. It takes away the sale and repurchase risk.

If you're going to sell and repurchase then I'd suggest checking what economic news is due the week(s) you're planning on doing so. It's best to avoid a week where there's an interest rate announcement. The less news the better :)