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Just had a look at Phoenix. Not sure where the value is there? Price to book is 1.45, made a big loss the previous 2 years.

I only buy stocks based on scrap value now- I.e net tangible asset, and would never pay more than 0.75x, just to give some tangible security to my investment, should all go tits up and it end in administration.

Panda,

If you think it’s crazy that the PSN share price is the same as 2013, what do you make of crests share price being 54% lower than 2013, and half its net tangible asset value?

“ so I expect a little more downside eventually”

So why do you continue to hold?

So glad I managed to get out of this in the 90’s.

Never agiain.

Steve,

I get the feeling you haven’t really grasped the fundamentals with PSN and compared how overpriced it is compared to other housebuilders. Compare its P/B and P/E with other housebuilders and this has further to fall than other housebuilders to find it’s fair value IMO.

Money line,

What makes you think there wouldn’t be a market to take crest over? BKG only operates in the south, where all of crests land bank is held. They have £1070 cash sitting on their balance sheet. Crest has £847m net tangible assets. BKG could offer a 50% premium on crest share price (£600m total) and still get all of crests land bank at a circa 30% discount.

Money line,

What struck me about this shared ownership scheme was that other housebuilders don’t seem to be offering it, and it’s not available on pre owned homes, which give crest a competitive advantage in a market where buyers are few and far between.

From the HB’s perspective it’s just as good as help to buy because it’s more affordable per month for a FTB, and the deposit is still 5% (10% of the 50% share).

The total monthly payments will be lower on this new scheme because they buyer is making payments on a 45% mortgage + 0.23% per month (2.75% p/a) on the rented 50% share. This will be cheaper per month than both traditional renting, and paying a regular mortgage, with or without HTB.

Porsche obviously doesn’t know how to read a balance sheet if he thinks there’s a chance of a rights issue for any of the house builders. If memory serves me well, only TW and BDEV had a rights issue in 2008. BDEV had around £6m in cash, and about £200m in short term debts. Long term debts also fell due and it simply didn’t have enough liquidity. That is not the case today.

Money line,

Re help to buy, Crest has just partnered with legal and general to launch its own scheme which is very similar help to buy.

https://www.warwickshireworld.com/lifestyle/homes-and-gardens/local-warwick-homebuyers-benefit-as-crest-nicholson-launches-new-shared-ownership-scheme-4383385

I bought 50,000 shares of Crest at 172, so I’m currently about 10% under water, but I’m not phased in the slightest.

I paid exactly half book value, so I’m happy with the price I paid. Sure, it would’ve been nice to get in cheaper but hey-ho, I’ll buy some more at a bigger discount. Now the market cap is sub £400m, with about £850m net tangible assets on the balance sheet, this will get a takeover bid I reckon, most likely from BKG- They’d be daft not to.

As I write, Crest Nicholson is trading at just under 50% of net tangible asset valuation! £876.6m of net assets, priced at £404m market cap…. Crazy!!

Even assuming worst case scenario:

Write the £29m intangible's off- leaves £847.6m net assets.

Inventories were sitting at £1108.1m on the latest 2023 balance sheet. So assuming worst case scenario, let’s say a write down of 20% due to market conditions- (£221.62m).

LEAVES £626m OF NET ASSETS (WORST CASE). That’s a 55% premium on current market cap!!

Being as Crests business is also predominantly in the south of England, it seems like a good opportunity for Berkeley to put a bid in to get the assets on the cheap. The latest accounts show it has £1070m of cash, so it’s well placed to put a bid in.

I’m not saying I’ve heard any rumours of this, just that it would be a great opportunity!

As I write, this is trading at just under 50% of net tangible asset valuation! £876.6m, of which £29m is intangible… priced at £404m market cap…. Crazy!!

Let’s assume worst case scenario:

Always write the intangible's off- leaves us with £847.6m net assets.

Inventories were sitting at £1108.1m on the latest 2023 balance sheet. Assuming worst case scenario, let’s say a write down of 20% due to market conditions- (£221.62m).

LEAVES US WITH £626m OF NET ASSETS (WORST CASE). That’s a 55% premium on current share price!!

The closest competitor to Crest is Berkeley group as it also operates predominantly in the south of England, which is where the vast majority of Crests land bank is held. Berkeley’s latest accounts show it has £1070m of cash sitting on its balance sheet so it would be a great opportunity for it to put a takeover bid in for Crest to get the assets on the cheap?

I’m not saying I’ve heard any rumours of this, just that it would be a great opportunity!

Porsche,

It’s funny you say that because had I been investing in 2021 when the market was on fire, I’d have been hitting the exit at high speed back then. Not now when the share prices are on their knees.

You see in this game you have to buy somewhere near the bottom of the cycle, and sell somewhere near the top, which means buying from a pessimist, such as yourself, and selling to an optimist; which will be in the run up to the election.

I’m not sure that a mortgage guarantee scheme really helps anyone except the banks. The issue is affordability/interest rates.

Legal and General has started its own version of the previous help to buy, it’s a shared ownership scheme which I notice Crest Nicholson is now offering (not sure if other HB’s are as well?).

The buyer buys a share of the property with a mortgage, Legal and General buys the remaining share and charges the homeowner rent at 2.75% a year, which is much more affordable than a mortgage would be at around 6%, or traditional renting.

https://www.crestnicholson.com/schemes/smart-own

Strictly,

registerme2023@outlook.com

Strictly,

I’m not sure about posting my email on a PSN board after rubbishing the stock 😆

I wasn’t investing in 2008 as I had no spare money (probably just as well), but looking at balance sheets from around the time it seems there was decent equity on the bottom line, so I can only assume it was a liquidity problem of operating with mega short term debts and minimal cash, and no way of robbing Peter to pay Paul?

I note crest has learnt from this, and has a £250m credit facility in place until October 2026, together with plenty of net cash, which should navigate us out of any sh*tstorms before Rishi comes to the rescue to save his job, oops I mean the economy. I assume other housebuilders have similar arrangements in place too, so I don’t foresee another 2008 scenario.

Strictly,

I too took a small loss on PSN too. Bought in at about £13 early this year when things looked like they were picking up, and I foolishly didn’t really do any research into the fundamentals. Then I compared it with other housebuilders and sold out at £12. All things considered, I think £6.50 is fair value for PSN, and I’d consider buying back in should it reach that level.

Do you think we’re approaching 2008 times again? Personally, I don’t for a few reasons. Balance sheets are stronger, and it seems to me like it’s being caused by the BOE and government policy, and with an election coming up, there could well be a return to help to buy or something similar to win votes. I think anyone investing today will see 100% returns by 2025.

Strictly,

I think we mostly agree. There’s no doubt that Bellway produces the best results/ return on assets etc. The reason Crest Nicholson struggles to match it is economy of scale in my view and would be far better off merging with one of the bigger housebuilders. There’s no doubt it offers the best value, at 47% of net tangible assets and must therefore be a prime takeover target for one of the big players to strengthen its balance sheet?

It was only last year that Vistry bought out countryside partnerships for £1.2b, which had less than 600m of net assets at the time. Crest currently has £883m of net assets and is trading at a £414 mcap so one of the big housebuilders could pay a 50% premium on current share price, and still get the assets at a c.25% discount.

I think where we disagree is how best to value housebuilders in troubled times. PSN is priced second highest in price to book terms, only because it has previously given better returns, but based on current profit forecasts of around 350m on the c3.5m mcap, it now has a higher P/E ratio than most of the others so how can its premium be justified?

IMO it’s highly likely that PSN will eventually trade at least the same level at BWY in terms of PBV giving it a £7 share price, and even then BWY would still be better value based on P/E ratio. And that’s why it’s very risky to place too much value on past performance over book value.

Strictly,

I appreciate crest may historically have been a poor performer if you look at return on capital employed, margins etc, but I’m talking about value and the ROI for the investor if you invest today at the current SP.

With respect, your weighted book value minus 25% seems like a finger in the air valuation. How do you arrive at the 25%?

To a certain extent, margins & return on capital employed are irrelevant to the individual investor. It’s what that translates to in terms of EPS which gives the ROI for the shareholder.

So to give a fair assessment, I think it’s far better to look at the average EPS over the past 5 years expressed as a percentage of current share price.

I appreciate my method is a little unorthodox, but I hope you see where I’m coming from?

Strictly,

I’ve done some calculations on to compare all the housebuilders, and I agree that you have the best 3 housebuilder stocks.

I’ve used 3 methods of valuation and crest Nicholson comes out on top for all 3:

Basic Price to book value:

Crest: 0.47

Bellway: 0.71

Redrow: 0.76

Market cap+ total debt as a percentage of total assets:

Crest 68.4%

Bellway 83.4%

Redrow 84.2%

Average EPS over the last 5 years as a percentage of current SP:

Crest: 22.9% (avg EPS 36.48/£1.59SP)

Redrow: 16.67% (avg EPS 77.22/463.2SP)

Bellway: 15% (avg EPS 306.42/2042SP)

Please check my figures and do your own research.

Porsche,

Many stocks (including PSN) are already below covid so you may want to reconsider how much further shares have to fall.

I tend to agree that psn will continue falling though as the SP is propped up by prior “superior” earnings over other HB’s rather than strength in balance sheet.

It will be interesting to see if it can still produce superior earnings in these challenging times. If not, then yes the SP could well halve.