Member Info for steph

Not much in 9am interviews Bit stronger that in 2021 profits will grow again but no guidance beyond that generality.

thanks

hopefully 9am interviews will clarify.

https://www.telfordhomes-ir.london/investors/results-reports-presentations/

Nothing hugely new except the much higher BTR objective. Now to be 70% of units. Foreign and investor advanced sales not going to be a major customer focus going forward. Will be owner occupiers much closer to completion dates. Seem to be trying harder to stay within the 600,000 cap of their near prime London young professional market after being burned an a few penthouses.

Say profits will be higher in 2021 and going forward from 2021 but nothing more than that general guidance. No sense of the scale of the increase. Hopefully will say more at 9am. Is it to be 20% or 50% or 80%?

Hoping for a positive year end report in 2 days I felt the feb update erred a bit on the negative Looking for some guidance beyond this profit dip.

I can see a mixed picture of tends that help TEF and hurt TEF SP.

THE Brexit Party surge is probably bad for TEF but the LIB Dem surge good. The possibility that a no dealer may become (however briefly) PM is obviously bad from a market perspective. The market does not like no deal at all -whatever it's merits may be thought to be by it's often passionate adherents.

I suspect the candidates for Tory leader will downplay no deal a bit now (tempted as they may be as they try to appeal to the elderly and largely out of touch party faithful). Only a few Tory votes of no confidence will trigger an immediate election they may not win.

I recall Joe Clark a Canadian Tory who said "he would govern as if he had a majority" . He duly become the shortest lived PM in Canadian history. And Clark was a more intelligent politician (closer to the Hague mold than an Ian Duncan Smith) than many of the Tory contenders here in the UK. Even Priti Patel, the intellectually challenged ex minster, thinks she has a shot so diminished is the quality of the field these days. The party as a whole deserves the dustbin for getting the nation in this mess. They have forgotten how to govern.

Very weird result. Labour and Tory combined down to abound 20 something % from 80% last time. Pro Brexit and anti Brexit parties (Labour not included in this) were really battling it out between them. The combined vote of the explicitly anti Brexit parties was greater at 40% than the pure Bexit parties (34%. This assumes Labour and the Tory vote is neutral.

I suspect the lib dem and green surge will put pressure on Labour to get off the fence and to become a remain Party while the Farange surge will encourage the remaining Tories to harden the Brexit requested. SO we are heading for a hard Brexit vs no Brexit debate that will not be great for business confidence -but we may muddle through skirting near the edge of a recession but never really plunging into one. More or less carry on as we are now. Low interest rates help . A low pound is helping exporters who would otherwise be shedding jobs on the uncertainty. Relatively low corporate taxation, helpful quite liberal banking regulatory environment, and a good private sector especially in business services are all helping overall job retention -especially in TEF's patch.

IN this atmosphere TEF can perform and grow but sentiment and thus SP will remain subdued until this is sorted. Good time to buy for the long run just done expect a sudden bounce back over the next few months.

https://www.edisongroup.com/wp-content/uploads/2019/03/Telford-Homes-Greater-focus-on-a-long-term-growth-market.pdf

point I like is that pipeline now at record levels of 1.6bn 5000 units with a 40% open market, 40% BTR and 20% affordable split. With a pipeline of that size no reason why units per year completed can not ramp up.

Crisp street not projected to generate completions until 2026. Maybe once planning is obtained a BTR can bring some of that future revenue forward.

I hope my last para was not just wishes.

Did stimulate me to look at the KPI's between 2013 annual report (I was all in from July 2013 onwards) and 2018.

My preferred KPI is units completed, especially open market units competed. This for me is the real capacity of the company. Revenue can jump on HPI, forward sales or BTR deals. Completions are more brutally honest on what the company is actually doing.

MY "wish" that this company will be bigger in 10 years time means bigger in terms of units competed above all. Of course it is a bit of a lagging indicator. It captures and crystalizes actions taken 4 and 5 years ago.

Quite hard to get total completions. Not in the annual reports. They do have open market completions which are as follows:

2013=374, 2014=492, 2015=374, 2016=482, 2017=289, 2018=476

This is much more modest growth than revenue. Indeed plotted on a chart it looks like it just bounces around on a flat trajectory.

revenue in the same period was :

2013=142m, 2014=140m, 2015=173m, 2016=245m, 2017=291m, 2018=316m

For the company to really fulfil it's often stated policy of being able to grow it must have a higher completion rate over time. I trust this is coming and I appreciate that completions is a lagging indicator but I am getting a bit impatient to see this KPI rise substantially. I can tolerate setbacks in profits realized if I feel confident the company is growing in size. Revenue will come if completions are rising.

True and that was 100% reinvested in tef so I’m all in. Taking divis into account I am still shy but not by much. However all behind a tax firewall so as long as tef do some sp catch up over the next 10 years I’ll be fine. In fact topping up my 20k this year at these prices means 2 or 3 k more shares long run. Even last 2 years were brexit depressed so I suppose I have 6 k shares extra to what I would have had brexit vote not happened. If political stability returns and tef sp does some catch up might just feel like a pothole in an otherwise fine highway.

Thanks Sain for the updates I’m hoping for good news on 30 may. My Isa position built up with scarce cash each year for the last 7 is showing a average buy price of 3.60 so ouch! Hopefully now followed by a biblical 7 years of plenty.

Tef territory of course Tef hAve not given guidance yet on the divi given net profit forecast to dip for 2 years. The have before varied the % rather than dip the divi so long as they thought the dip temporary. Free to do so so long as there is profit cover. Nothing written in stone to retain 2/3rds of profit, most builders don’t, Forward guidance beyond this 2 year dip not there yet. I am hoping it is all profit delayed and not profit lost. This maybe divi will be maintained and jump in 3 years time. Looking forward to May 30 update.

https://www.bloomberg.com/news/articles/2019-05-15/london-luxury-home-sellers-hit-by-longest-price-slump-in-decades?srnd=premium-middle-east

not quite EF territory but has an influence.

Can't believe 2.75. Maybe I'll remortgage to take advantage. Can't last. How can a growing healthy company have a yield of 6% when that in turn is only about 1/3 of profits. If TEF were not reinvesting nearly 2/3rds of profits the yield would be nearly 18%, utterly bonkers.

as you so clearly outline winning a competitive tender with 40 bids means that upside potential is sucked out of it and the winner is just faced with downside risks. To win you need to be the most optimistic of 40.

More time consuming in the short run but partnerships can deliver better value for TEF. TEF almost always has open book accounting on deals anyway and is not really seeking that closed book chance of an extraordinary career changing profit on a specific development that developer administrators dream about. It is just not their thing so they make good public private partners on complex sites. Greed is not good for a viable public/private partner.

of course 189 units is significant for TEF. That is why I look so forward to volumes getting above 2000/unis per years where these setbacks are not so lumpy on results and are part of the law of averages.

TEF made a strategic decision to not pursue smaller sites and this is more or less the minimum size for TEF now.

SO we have a smallish builder with a fast growth strategy in a market niche that can accommodate a lot of growth. For me that is the ISA value proposition.

Yet as we have just felt you can't expect there will be no planning setbacks along the way. Maybe no strategic lesson to be learned. I don't want TEF to become more cautious as that will limit growth to where they have the advantages of size.

Cambridge Heath is either

1) TEF paid too much in a competitive bidding process based on a hope that the 50% would not be invoked when affordability "three Dragons or it's modern iteration" was applied. As Sain points out the figure used for assessment is not purchase price (although purchase price, plus or minus inflation, should normally be the same as the assessed value at the application stage).
2) the market, perhaps Brexit related, softened between purchase and submitting the application which I suppose is the trigger date for the affordability appraisal. Always a risk for Developers but it works both ways. A site bought cheaper than the assessed value at time of application is windfall.

As James points out it is one of many schemes and not a large one. The value add and risk for planning is a key core business of the builders that forward sales and even BTR do not normally mitigate as they are post planning. Somebody has to take that risk to earn the relatively high margins the builders take. It will not always go a builders way no matter how skilled. Law of averages. If it were easy many more players, national and international, would be active in London and TEF's margins would get squeezed. Can't have it both ways.

189 homes is significant but not large. I look forward to TEF growing to over 2000/units per year where 189 would be less than 10% of yearly output.

The density surprises me. 500 units per hectare, PTAL of 6a with only 2 parking spaces yet only 15 stories at the tallest. 15 is an odd height. I understood there was an inflection point at around 12 stores where there is extra cost per sq foot to go higher so once you go over 12 may as well go to 20 and get the extra units for a fixed land cost. Probably planning restrained that.

Within GLA policy this site seems to be urban and that allows up to 700 units per hectare with a 6 PTAL. Maybe LBTH tried to cut the heights and step down the heights to match the shouldering buildings so TEF could never get close to the 700 units even though quite dense development that would have made the economics work much better. Death by a thousand cuts. Personally the site would have worked a lot better with higher buildings and more open space at ground level.

thanks for correcting me on a subtlety I was not aware of within the financial assessment to determine the affordable %.

While normally price paid (plus or minus inflation) and assessed value at the time of an application would be very similar (if you borrow money against the purchase it must be) of course it makes sense to ignore paid price if the builder has really overpaid for the site. The reverse -that the builder got the site genuinely cheap- is then the builders windfall so it works both ways.

Three dragons (or it's modern iteration) should of course take into account the assessed value at the time of application and not the actual sales price to prevent creative accounting, a genuine market drop or just a clumsy purchase entirely the fault of the builder.

Bit worrying that the TEF team seem to have overpaid for the site according the assessments being used in this application -and by a few million. Possible this was just an unexpected market softening after Brexit vote that has caught out TEF and in fact the few million difference is a necessary mini land bank write off related to Brexit jitters. I doubt if the GLA 50% policy was not flagged up during the purchase and duly taken into account by both parties. Too obvious.

Unfortunately all the builders take this land bank risk or they could not operate. TEF must do so as well but BTR can mitigate this risk and I am pleased TEF are leading the builders on the % BTR it is planning to execute.

Forward sales do not mitigate this risk as they are all post planning. I would imagine while BTR funding can be conditional on planning most good margin deals are all post planning. They willingly pay for someone to take the planning risk and the builders manage that risk as a core business -but it will have swings and roundabouts for the builders. Of course some sites are sold with some outline planning which gives a builder a minimum baseline to work with but they are few and far between and expensive and the outline will rarely align exactly with each builders strategy and market.

I am looking forward to TEF growing to a volume where a few million set back on one modest site is a blip on profits. For me that is over 2000/ units per year. Then a 189 unit delay and on worse margins than expected is a minor adjustment to year end profits.

Disappointing but almost certainly fully priced in at this SP.

interesting development in that it is quite dense. PTAL 6a helps. only 2 parking spaces for 186 homes. That is about 500 units per ha pus some ancillary uses.

Personally I would have gone higher than 15 stories and have had more ground level open space but I'm sure there would have been more objections so 15 was probably a compromise. I understand that 12 stories is a bit of an inflection point on cost per sq m so 15 is an odd height -although as construction technology, lift costs, lift shaft and foundation engineering design changes so does this inflection point so I may not be up to date.

As I understand it once you go above 12 may as well go to 20 -planning permitting of course.

thanks read it. Yes seems to now depend on Mayor. LBTH just kicked the can down the road.

I read GLA comments and quite supportive. Yes as ex public land needs to meet the GLA 50% affordable policy (that GLA policy should have been factored into the purchase price) but this is of course subject to three dragons which GLA officers will review and the actual purchase price will be part of that.

My understanding is that if overpaid it is the affordable sector that will get screwed and not TEF. As it was a payment to government the pubic interest is served.

thanks for the update.

The return of the foreign buyer and with it the buy off plan option for TEF is eagerly awaited. I suspect we need some business certainty for that to happen and then it may flood aback pretty quick.

If not for Brexit and the political paralysis over Brexit we would be considered remarkable stable. GDP growth very modest but still positive and unemployment at record lows. Debt as a % of GDP going down a bit to 85.8% close of year 2018 from a high of 87.5% close of year 2017. Of course anything over 60% considered high (Germany around 60% now) but with USA currently on 104.7%, Italy on 132%, France on 98.4% we don't look too bad for international investors nervous about economic sustainability. Being able to print our own money and having the chair of the international banks as our independent BOE governor all helps.

https://www.ft.com/content/514d9b62-6dec-11e9-a9a5-351eeaef6d84

first signal that Brexit delay has had a positive effect on London jobs. Maybe Goldman's think that bank passporting is still possible (near single market Brexit or no Brexit) in the longer term.

yes BTR will in time fill the hole left by the forward sales which at their zenith were selling off plan 3 years in advance with 10% deposits rising to 20% (around 12 months I believe) before competing.

In this period of transition from robust forward sales to BTR I feel we have undershot SP as reported actuals on EPS have stagnated or gone down. I consider it a transition problem which is temporary but the market does not give TEF credit for the fuller picture of an ever expanding business with good margins gong forward. Looking forward to a BTR update on 30 May.

A couple of delays on planning on two major sites is of course bearing down on SP. A reminder for us long term holders that achieving planning is difficult and a major barrier to entry that gives TEF space to expand for the next 15 to 20 years within it's core market at a good clip (which I still say is every 6 years or so -down a bit from my previous 4 to 6).

The underlying BTR market is going from strength to strength. The withdrawal of many small buy to let investors (myself included) is giving the BTR market an unexpected boost. Amazing that with all this uncertainty rents are still rising in London. Imagine the shortage of rental units if we had political and economic stability.

Corbyn the only threat and that assumes he gets to power and also passes legislation that hits BTR profits. Even lefties realize that to get homes built by the private sector you can't decrease profitability -so I expect Corbyn "reform" to be long on tenant rights and short on BTR economic stick.

I think a mild Brexit the probability now. A mild Brexit has long been priced in. Indeed a harder Brexit and some degree of risk for no deal is also priced in so an orderly mild Brexit supported by the front bench of Tory and Labour would be a market upside result. pound up then TEF up.

Reading the tea leaves on the deal emerging it seems that it will be some sort of time limited customs union until the next general election when Labor will be free to go milder and perhaps support a second referendum and Tories free to go harder with no second referendum. That might satisfy the various constituencies within each party and be decided by the electorate at the general election between competing manifestoes.

Will be the most interesting general election.. Lib dems may recover their 50 or so parliamentary seats. The new Brexit party might pick up a few. The new centrist party pro EU party may pick up a few. I'd expect the Tories to do quite badly no matter what they do from now on in and no matter what leader they choose. They are hemorrhaging support from both the right and center so the walls are closing in. Tories may yet regret not doing more to support the lib dem proposal for proportional representation. First past the post system works for you when you get over 30% of the vote but can be brutal if you fall below that threshold -as the lib deems know all too well.