Chris Heminway, Exec-Chair at Time To ACT, explains why now is the right time for the Group to IPO. Watch the video here.
“Details” at https://www.gov.uk/cma-cases/barratt-slash-redrow-merger-inquiry
It’s hard to see how the merger of the largest and 7th largest creates competition concerns when PSN, TW and Bellway aren’t far behind BDEV.
"Surely that 1bn should be invested into a current portfolio company or grab a new one. Ideally publicly traded."
Only if they take the view that the £1bn can be deployed well. And making the money available for buybacks doesn't take it off the table if something better comes up.
It might be the case they have a view of when some of the currently privately held companies are going public and taking a view that buying some of the resulting price action at a discount to NAV is a good move.
From Apple News - https://apple.news/ARtLnCj1bSpa6w2x2WQVt8Q
Key bits below…
Some companies almost certainly were guilty of failings in concealing commissions charged on car loans, the chief regulator of the City has suggested, but he played down speculation that redress would cost anything like the £50 billion bill for mis-sold payment protection insurance.
Nikhil Rathi, chief executive of the Financial Conduct Authority, told a City conference yesterday it was “improbable we will find nothing to report as we look at historic motor finance sales”.
However, he added that the investigation and compensation arrangements would not be on the scale of the PPI scandal or as protracted. The last PPI compensation payments were made in 2021, 16 years after the first official review began. “I do not anticipate this issue playing out as PPI did, not least because we have intervened early in the interests of market orderliness,” Rathi said.
I'm not a premium member, but would otherwise message this...
I thought you might be interested in this - https://monevator.com/what-to-do-if-youre-queasy-about-the-us-stock-market-members/
The site is largely free, but they have two levels of membership and this article sits behind the first level membership. In my view, the cost of the membership is worth the content.
You're welcome b-w-f
If you are invested here for the dividend then you might want to read this - https://www.roywalkerwealth.com/2018/01/warren-buffett-on-hamburgers.html#
I'm invested here and with AV., MNG and PHNX. MNG and PHNX are both reporting next week, which I'm looking forwards to.
"My understanding is basic but the dividend per share is grossly under covered by earnings per share. (Source simplywall.st). As I say my understanding is limited but this is not sustainable for any business. Can anyone explain how this level of dividend is likely to continue please?"
What BeReyt say, plus...
b-w-f - two things to understand:
- Dividend cover as a metric simply doesn't work with the new accounting standards. Explanation below
- Simply Wall St is primarily auto-generated content, so lacks the nuance to understand that!
Why Dividend Cover is a broken metric...
Dividend cover is calculated as Earnings Per Share divided by the total Dividend paid.
Earnings Per Share is calculated as Operating Profit divided by the number of issued shares. (Simplified, but it will do for our purposes.)
In 2018 (IIRC), accounting standards changed so that companies had to assess the value of investments against what they could be sold for and recognise any profit or loss against their declared profit and loss. (This is called mark to market.).
Prior to 2018, operating profit was calculated only recognising the profit or loss for investments actually sold during that year.
As an example, take a company makes £100m in profit, but has commercial property whose value (if sold, which they have no intention of ever doing) goes down £250m. They pay out £50m of dividends.
Prior to 2018, the company will have reported an operating PROFIT of £100m and Dividend Cover would be 2.
After 2018 it made an operating LOSS of £150m with Dividend Cover of -3.
The amount of money going into and out of the company is the same.
Under the new rules, if next year the value of that commercial property recovers and the company has still made £100m of operating profit then the reported profit will be £250m.
Again, the amount of money going into and out of the company is the same.
Just to make it more fun, last year, another new accounting standard (IFRS17) changed the accounting treatment of insurance companies. What it does (and I simplify) is require companies that sell long dated products to recognise the profit from those products over the life of the product. For example, if you sell a 10 year annuity then you have to recognise the profit from that annuity over 10 years. If you sell a car insurance policy then you can recognise all (actually most) of the profit in the same year that you sell it.
This is why Aviva's profits this year look fab - they've been able to hike general insurance premiums and increase margin whilst doing so. Whereas L&G has sold LOTS of annuities, whose profits have been put into a "pot" and will be released incrementally over a number of years.
So, Dividend Cover is broken - and has been since 2018 - because it's calculated based on Operating Profit, which no longer represents the ACTUAL operating profitability of the company on a day to day basis.
Hope that helps.
Zac - your point about shielding money in a SIPP is an important one.
“The same value investment in a sipp would pay you, assuming you are a 20% tax payer, an identical nett dividend and if you sold your invetment you'd be 6.25% better off with your sipp than your isa!”
I understand the principle zac - make the contribution; get tax relief on the contribution; payment comes out with 25% tax free and with only the remaining 75% taxed at your marginal rate.
And/but it does leave someone in the hands of the tax setting gods as it assumes that you’ll stay a 20% tax payer.
It also doesn’t work if you’re near the LTA, which Labour has promised to de-abolish.
As a general principle, I’d argue that once money is in an ISA then it’s better kept in the ISA as it’s much more flexible - you can take money out and repay in year and take a view closer to the time of retirement about whether to put into the SIPP at the time. You can also draw from it before the normal minimum pension age, which is increasing from 55 to 57.
With the MPAA at £10k you can always indulge in a spot of pensions recycling as and when you want to - take the income from the ISA; pay it into the pension and draw it down immediately and benefit from the tax free element of it’s available to you.
Paying into a SIPP is much more one way.
Just to clarify. My post is NOT "advice". Which is a dangerous word :)
Balkwill66 - Christofer's reply is perfectly valid. This post is to offer some alternative points of view. Neither post is right nor wrong.
Five points:
1. The key question is what has changed in the company from when you bought it?
I bought a company 18 months ago where the stated strategy wasnt' what was executed and I didn't understand the numbers any more. So I sold for a 20% loss*.
I'm currently sat on a -10% loss* on an investment where nothing has changed since I bought it - it's just that the market doesn't like it. I can be patient (see number 5).
My BDEV investment was -16%* last year and now sits at +30% against my base investment. Things change (see number 5).
2. You say you're £3k down, but does that include the dividends you've received. At the end of last year I did an exercise in looking at my investment positions dividend reinvested/taken. It's good to understand your actual position.
3. Is the amount you're down "material" to you? If you're likely to have a need for the money in the near term then you're better off selling than waiting it out.
4. Can you clearly see a better alternative for investing your money?
5. Which brings me on to Charlie Munger (Warren Buffet's right hand man) - “The big money is not in the buying and selling,” he said, “but in the waiting.”
Remember that, if you sell, you don't have to sell all of your holding :)
Best wishes.
* For those of you thinking - "Why should I listen to someone with this track record of loss?!" - I just want to say that I win more than I lose. I'm also a great believer in Warren Buffet's "hamburger" principle whilst being paid to wait for stuff to come good.
Apologies londoner7 - text from the site below.
Very few UK companies have a “moat” and none of the house builders. Even Apple was only classified as having a narrow moat - although I think that’s now been revised.
The text…
The Morningstar Economic Moat Rating represents a company’s competitive advantage. An economic moat helps a company fend off competition and earn high returns on capital for many years to come.
Morningstar identified five sources that build and widen a moat:
1. Switching costs are obstacles that keep customers from changing between products, like from one company’s product to a competitor’s.
2. Network effects occur when the value of a good or service increases for both new and existing users as more people use it.
3. Intangible assets are things such as patents, government licenses, and brand identity that keep a company ahead and competitors at bay.
4. A company with a cost advantage can produce goods or services at a lower cost, allowing it to undercut its competitors or achieve higher profitability.
5. Efficient scale benefits companies operating in a market that only supports one or a few competitors, limiting rivalry.
If we can expect a company’s competitive advantage to last more than 20 years, we consider it as having a wide moat. If it can fend off rivals for 10 years, it has a narrow moat. If a competitive advantage doesn’t exist or may prove fleeting, there’s no moat.
When searching for undervalued companies, those with narrow or wide economic moats often offer attractive return potential. The Morningstar Economic Moat Rating can help you identify those companies to provide superior long-term returns.
Morningstar’s most definitions - https://www.morningstar.com/stocks/morningstar-economic-moat-rating-3
Their definitions require a company to be able to fend off competitors for 10 years to have a moat.
From th RNS…
“ We recognise the importance of returns for our shareholders and our Capital Allocation Policy, established in 2022, seeks to balance cash returns to our shareholders with investment in the business for future growth. For 2023, the Board proposes a final dividend of 40p per share to be paid on
12 July 2024 to shareholders on the register at 21 June 2024, following shareholder approval at the AGM. This dividend is in addition to the interim dividend of 20p per share, paid in November 2023, to give a total dividend per share of 60p in respect of financial year 2023. The Board's intention is to at least maintain the 2023 dividend per share in 2024, with a view to growing this over time as market conditions permit.”
It HAS NOT been cut. Look at the Financial Highlights section of the RNS and look at Dividendmax.
The 20p in November was for THIS financial year. The previous 60p was for the LAST financial year.
Dividendmax is - certainly now - saying 40p.
From Apple News - https://stocks.apple.com/AbYFLmCpMS36TVPSquUWE6w
Persimmon Earnings: Shares Remain Materially Undervalued Despite Tepid 2024 Cyclical Recovery
While the cyclical recovery of Persimmon’s earnings is underway, the rebound in earnings in 2024 is shaping up to be more gradual than we’d previously forecast. Sales activity is improving, but at a more modest pace than we’d previously anticipated, thereby pointing to a softer second-half performance for Persimmon than reflected in our 2024 estimates. Year to date, the weekly private home sales rate on Persimmon’s development sites is ahead of last year—at 0.59 homes per active sales outlet in the first 10 weeks of 2024. While encouraging, the improvement is modest relative to 0.54 homes per active outlet in the prior corresponding period and likely holding back second-half volumes. In response to the more modest improvement in homebuyer appetite, Persimmon has—similar to its peers—continued with the use of sales incentives in 2024, which will restrain the extent to which profit margins recover in 2024, further holding back the near-term recovery in earnings for the no-moat homebuilder.
Persimmon delivered 9,922 home completions in 2023, aligning with our forecast for a 33% year-on-year decline in volumes in the face of decidedly downbeat UK housing market conditions. Consequently, full-year EBIT of GBP 355 million contracted 65% year on year and also tracked about 6% soft relative to our forecast as second-half build costs proved less favorable than we’d previously expected.
We expect to lower our 2024 estimates with Persimmon’s 2024 home completion and profit margin guidance tracking softly relative to our prior expectations, which factored in a swifter return of homebuyer confidence. Persimmon expects to deliver 10,000-10,500 homes in 2024, about 8% below our prior expectations at the midpoint. Still, Persimmon shares remain attractive, trading at a 42% discount to our GBX 2,300 fair value estimate, which we don’t expect to change materially after downwardly revising our 2024 financial estimates.
"I guess you received the same confusing message from DividendMax regarding the 40p?! In the RNS and the related news I read everywhere 60p like last year."
60p total for the year. 20p already paid as interim. 40p to be paid.
“ What was the basic lesson we were taught about investing?
6%+ are value traps, and show no growth.”
Maybe. Or maybe not.
The key question is where 6% comes from and in what interest rate context? In the low interest rate environment we’ve had since 2008 then 6% was probably/maybe about right. But that doesn’t necessarily translate to a higher interest rate environment.
Theory says that stocks need to pay a “risk premium” in terms of overall returns against the base interest rate - usually at least 2-3%.
It’s a fallacy to generalise S&P500 or NASDAQ performance with “the US” - strip the magnificent 7 out of the S&P500 and it hardly moved overall last year - https://www.nasdaq.com/articles/you-might-be-shocked-to-learn-where-the-sp-500-would-be-in-2023-without-the-magnificent
It’s also a fallacy that anll high yielding companies anre necessarily dividend traps. A company is certainly a dividend trap if you can’t see where the dividends are coming from other than capital erosion. But that’s not the case here.
Vodafone? Absolutely. (In my view. I’ve done work there and wouldn’t touch with a barge pole.)
Anyway - ALL - returns are personal. My tech investments have only recently shown a profit over two years after the horror of 2022.
I’m up an annualised 20% on LGEN, but bought when the value was compelling.
Each to their own of course and best wishes for your investments.
"Does anyone think there will be an opportunity to top up here at 220p, or lower here , soon? Or anything below 240"
The general sentiment towards insurers is favourable on the back of good results all around at the moment - with MNG (on Thu) and PHNX (on Fri) next week. PHNX have already released a trading statement setting expectations of a *very* good set of results. If MNG's result are good then you can probably expect a bump here as well.
At the moment, anyone selling workplace pensions is onto a bit of a winner as all those inflation-busting pay rises are (generally) feeding through to higher pension contributions. The high interest rates means sales of annuities have doubled or trebled.
So, unless there's bad economic news or an adverse world event, your chances of 220 probably aren't great before it goes ex-dividend.
I'd have thought that below 240 is eminently possible on a bad general news day - or worse than expected payroll, inflation or job numbers.
And/but, if you have the money then I'd just set a buy limit order at whatever your happy place is.
I have what I call my "Gee Gee company" - it's a company that trades around 50p a share; is thinly traded and, in my view, is hideously undervalued long term. One day someone will over to take over the company at £2. Every time my dividends get reinvested and there's some money left over then I set a limit order in the market for 30 days and walk away. The market makers will usually fulfil the trade eventually - just to have some volume. The purchase is normally around £50-80 each time.
It's my Gee Gee company on the basis that it's a gamble rather than a punt. It's money that other people might punt on the horses and provides some light relief from the more serous business of nursing my SIPP and ISAs.
"Maintaining the dividend which I thought was very positive"
I'm with Krustysmegma. In the current climate I'd prefer the company to preserve capital as Barratt is doing.
MrMath - I largely agree with your correction of my overly simplistic post. I certainly agree that the shares have room for growth - both in terms of a re-rate and also in terms of business expansion.
And/but any reduction of the dividend from current levels is certainly going to drive out a good number of retail holders - and some institutions - who are here for the dividend.
They could go to a “no particular commitment to increase”, which would drive out a few.
“Unless they were on about returning excess capital to share holders.”
They were.
There’s a view that L&G is sat on more capital than it can usefully deploy within the business and the expectation has been that a buyback is more likely than a special dividend or capital return given the share price.
The note in the results was effectively “We hear you, but think that we CAN deploy that capital effectively. But we’ll keep an open mind on capital returns.”
It has nothing to do with the dividend. There is a commitment to increase the dividend until (IIRC) 2024 at a “mid single digit rate” (or something like that). Which has effectively meant 5% a year. They’ve met that commitment.
It doesn’t take an investment genius to spot that any reduction in dividend would decimate the share price.
It’s important to say that when company valuations and share prices are low then it’s generally not good to have lots of spare cash sloshing around as it tends to make you an easy takeover target. One way of looking at L&G is that it has £14bn one the “future profit pot” and £7bn of assets against a £15bn marcap.