Member Info for strictlybricks

Interesting to see that Vistry, by far the worst performer over the past decade of the big house builders that I track though none-the-less still enjoying a gravity-defying market valuation, are about to embark upon a share buyback adventure...

Let me quantify my above assertion on this.

Tangible BVPS at the end of 2012, 567p

Tangible BVPS at the end of 2022, 572p

So, over ten years, Vistry have made the princely progress of just 1%.

And yet, for this stellar performance, the market currently awards them a price to book of over 1.3, which even trumps Persimmon’s…

Furthermore, Vistry also have the weakest balance sheet of the lot by the metric I use, which is total liabilities as a percentage of net tangible balance sheet.

Vistry’s is the only one with a total liabilities percentage in treble figures ~ 142% as at June 2023 by my reckoning….

Vistry are way off my radar as a potential investing prospect ~ but they do still fascinate me as I watch Mr Market’s workings, and wonder..?

Which is why I keep tabs on them…

Strictly

Steve,

For you or anyone else interested in what's going on in the property market currently based on actual numbers & statistics rather than mere conjecture and as opposed to what happened months ago, this Youtube site is worth checking out...

https://www.youtube.com/playlist?list=PL8EVjavxiDxhquawPNmGzicGQ0Wr5BTtK

I've now been keeping tabs on it for a few months, on a weekly basis when the updates are issued, and the upshot is that today's number from the Nationwide came as no surprise to me ~ as also, I imagine, was the case for anyone else keeping an eye on that website...

I have to admit that it's not exactly exciting viewing, but that's largely due to the fact that the chap running it, Chris Watkin, absolutely sticks to the facts in front of him and completely swerves any temptation to engage in speculative hyperbole ~ unlike pretty much all the doom-mongering media pundits we read in the press...

My take is that the essential message being conveyed is: "Calm down… nothing to see here.... move along...".

And this is the bang up to date position being discussed so, if it continues to be proved right, it's telling us now what the Nationwide is likely to be telling us months from now...

The thing is, how often in this game do you get the opportunity to drink with Captain Hindsight ~ the old b.stard is never normally there when you need him...!

Strictly

"Oh, I’ve finally got round to posting on Strictly’s blog! About the net cash situation here. Wether he allows it to be posted and if he responds we shall have to see. Just in case you wanted to get involved, if indeed, it becomes chatted about? "

....................

Crossley,

Don't worry ~ I ain't the thought police and I have just responded on the blog to your comment there....! :-)

Strictly

"You put a post up here about PSN a few months back which I found very interesting"

...........................

RM,

As well as here, I've written copious amounts about PSN on the blog ~ which both you and Crossley happen to be signed up for ~ so I suggest you have a look there, scrolling back through the relevant stuff and, if there's anything you'd like to add, I'd prefer to do it there as although I do come on here in flurries of comments from time to time it's the blog that is my priority as that is the place for discussion amongst our investing crew and many of them don't come on here...

Between there and scrolling back on my stuff here. I'm sure you'll find I've already pretty much beaten it to death and probably started to bore people stupid with it both here and on the blog...

But, suffice to say, having bought significantly into Persimmon last autumn, and subsequently having faced up to re-rating them rather sharply downwards this year in terms of relative perceived value against the enduring heroes of the sector, Bellway & Redrow, while this year to date I'm showing an overall gain right now of 17.9%, it would have been a shedload better if I hadn't had the Persimmon adventure in the first place...!

And hence my current poor showing in SWR this year... :-(

Strictly

Crossley & RM,

I'm not sure exactly what it is you are asking me..?

Strictly

"Anyway, I think I've probably bored the pants off enough people......"

......................

FFO,

Yes ~ I think we've pretty much beaten it to death between us, but thanks for the discussion here... :-)

Strictly

"The new accounting standard has no effect on the solvency, affordability of dividends etc. Just a difference in recording. Another example of why book value for these types of companies is not the best investing metric, assumptions can change wildly with new accounting standards. Cash generation is all that matters in the long term and L&G are an excellent cash generator."

......................

FFO,

I would suspect that you and I are partly in agreement about this... and partly not.... and in that respect it may be that we have to agree to disagree...?

I agree with you that cash flow is crucial.

My metaphor for this ~ one I used to use in my business counselling days ~ is that profit is like food but cash flow is like air... I mean, you can go a relatively long time without food but you won't last more than a minute or two without air, and so it is with cash.

But you can't live forever without food, and so it is with profit ~ the "food" in my metaphor.

There are two tests for insolvency ~ not being able to pay your liabilities when they fall due, cash insolvency, and having negative net assets, balance sheet insolvency.

And while LGEN has been pretty impressive on the cash flow & dividend front, paying out an average of 11.3% of net tangible assets annually as dividend, this recent regulatory "adjustment" has whacked its tangible book value per share by more than 60%.

So, hit it with the same again in value terms, and its balance sheet would then be under water.

Which is why heavily leveraged balance sheets make me nervous in any event, let alone those I don't fully understand due to all the various complicated factors involved.

The upshot is, based on the numbers I pulled out this evening onto a spreadsheet, that the BVPS has only increased annually since 2009 by an average of 0.7%.

So, for me personally in terms of my view of alternatives for investing, a couple of things.

Putting to one side the headwinds that have faced house builders in the past few years ~ covid, cladding, Gove, Vlad, etc., ~ the long term annual return on equity for the grownups of the sector is around 16%, which on adjusted figures is comfortably ahead of LGEN.

Secondly, a further upshot of the adjustment is that to keep making progress in earnings per share to maintain the same sort of dividend cover, LGEN will, from here, have to more than double their return on equity ~ which they may well do, of course, and I don't know about that because I don't know about the business, but I prefer to have a crack at the easier questions on the exam paper...?

So, the bottom like for me is, for all the folk here who are followers of LGEN ~ rather you than me, Gunga Din..!

Anyway, I'm happy to have done the number crunching on this in order to satisfy myself that this is not a share for me.

Strictly

"Their assets under management have dropped from £1.4TRILLION to around £1.16TRILLION, this and equities going down with declining global markets would be the cause of total equity being reduced. Scary amount right? Does it matter though?"

.....................

FFO,

Assets under management aren't the issue I'm referring to, it's the net equity that's the thing here....

However big a balance sheet is, as I imagine you already understand (as I'm not trying to teach you or anyone else here to suck eggs), it still boils down to the net equity ~ i.e. the amount left after you've knocked all the liabilities off all the assets and which is the bit that is owned by the shareholders of LGEN ~ having more than halved in six months based on a sharp reassessment of some sort or other ~ and it was a bit of background on that "sharp reassessment" that I was curious to know about if anyone has done the necessary legwork that I haven't done and is also happy to put some detail up here..?

But I didn't get into it myself as, to be candid, it was a bit of a passing whim on my part to look at it in the first place based on it seemingly being a popular share amongst some here amongst those who generally seem to have something worthwhile to say...?

However, metaphorically speaking, (investment-wise, at least), maybe I'm something like an old hermit crab, and that it's going to take more than LGEN to get me to poke my head too far out of my shell..? :-)

Strictly

"Take the last lgen figures ending 2022 when the pbv wasn’t too shabby. £501b of liabilities against £513b assets. If those assets get impaired by just 2.4% the entire book value is wiped out.RM,"

.................

RM,

That's my point and that's why I'd be interested in a response from Crossley, along with any other LGEN aficionados here who may have an informed view on this and who may care to offer a reply...?

I guess I'm like Warren Buffett insofar as I stick to what I feel I know something about along with having balance sheets I think I understand ~ which is why, after all, I've now spent twenty years investing in the same sector...

Whereas, the heavily leveraged balance sheets of finance companies leave me cold & quaking...! :-)

Strictly

PS

"I did run short of time as the ****nal game came on, and i didn’t want to miss that"

........................

It seems that LSE is not impressed that I'm a supporter of that team from North London that ain't the Spuds...?

Strictly

"i’d echo that steve. lgen is my largest holding."

..............

crossley,

i formed a curiosity about lgen because quite a number of credible commenters, both here and in the telegraph, seem to continue to rate it, so i put a bit of work into it on a spreadsheet earlier this evening to have a fairly quick initial look at the company.

i did run short of time as the ****nal game came on, and i didn’t want to miss that (one has to get one’s priorities right) but i did go as far back as 2010 on the key numbers as these are readily available on lgen’s website…

their balance sheet makes me nervous as i consider it to be somewhat above my paygrade to understand it, and it is very big balance sheet against the net equity ~ so it seems to me that it could potentially easily be knocked out of shape for reasons that aren’t necessarily immediately apparent (give me a straightforward balance sheet of any house builder any day in preference…) though i could be wrong about that, but the numbers were looking interesting at least…?

average reality check return on equity (which is the way i do the numbers for house builders, i.e. roe obtained by tracking bvps, adjusted for divs, on the balance sheet rather than taking any notice of declared eps) for the thirteen years from 2010 to 2012 of 19.1%...

impressive…

bvps growth from 71p to 194p over that time, so averaging 8.1%…

also good, imo…

then i got to the h1 2023 figures….

bvps falls right down to 83p…. at first glance this seems as bad as battersea’s (aka bovis/vistry) balance sheet adventures and it wasn’t obvious to me in the h1 commentary that i admittedly only briefly skimmed what this was about…?

having now watched a very entertaining match, i kinda ran out of steam to dig back into this, so i’m being lazy here in asking, given that you have implied that lgen is your game ~ and so i’m imagining you pay attention to such things ~ do you know the reason for the 57% bpvs drop…?

if it hadn’t been for that, i could have maybe been encouraged to look further at the company to see if i could reassure myself about the balance sheet ~ particularly because the dividend track record is so impressive ~ with a view to a potential side-hustle for a part of my invested capital now that i have lost confidence in index linked gilts following last year’s experience with them…

strictly

RM,

I've just sent you an email ~ so hopefully that's arrived...?

Strictly

RM,

Re email address, I wouldn't want to put mine up here either...

However, other people from here who have joined the blog have put up a temporary email address and once I've made contact via that then revert to their normal email once they have mine...

However, as plan B, I could put an APB out on the SB blog to see if anyone is still hanging on to one of those temporary email addresses and who would be happy to put it up here so that you can then contact them and, from that, I can then contact you directly via email...

But let me know here if you like me to do that..?

Obviously, whether or not you do then decide to sign up for the blog is up to you, but at least you then have the option...

Strictly

"Do you think we’re approaching 2008 times again? "

……………………..

RM,

Well, that's maybe a thought to conjure with...?

As it happens, I just decided earlier today that a possible discussion for my next month’s SB blog post could be "Slow burn credit crunch?" ~ so it's already on my mind, but I haven't thought it through yet nor properly played with the numbers....

I don't know how far you go back in this game and whether you have the numbers from then, but Bellway had a very different credit crunch experience to that of Barratt & Taylor Wimps, and I reckon you probably need look no further than at their respective balance sheets to see why...?

The sh.t storm I reckon we’re most probably still heading into seems to be coming at us somewhat slower & more obviously than the credit crunch did ~ which seemed to catch out nearly everyone except the boys from “The Big Short” (a top film, IMO) ~ and so the builders have had more time to hopefully prepare…

And also the scribblers’ dire forecast turnover and EPS numbers for 2024 are out there for us lesser mortals to ponder…

Perhaps a better comparison with now would be the drop off in turnover in 2009 and the levels of return on equity subsequently made then…?

RM, I’m not looking to overly get into all this here on a public forum as it gets somewhat convoluted, and my first commitment is to my blog which, in large part, consists of my circle of family & friends…

Though, increasingly, where I’ve felt happy to invite them to do so, a number of folk from here and also from Telegraph investing chat have joined (though the latter tends to get a bit toxic so I’ve now pretty much given up commenting there…).

What I’m driving at is that I like the calibre of comments you put out here, and I also like that you’re on a similar song sheet to me about all this but not entirely the same one…

So, if you’d like to get into this in more detail, with others of a similar mindset (some of whom also comment here) then, not here, but you’d be welcome to join the blog ~ you’d need to let me have an email address for that, mind, even if it’s a temporary one just for the purpose…

I’ll leave that with you, though….?

Strictly

RM,

Well, I seem to have called it wrong with Persimmon, that's for sure... and, as mentioned in my previous comment, the experience has given me a new rule of thumb with regards to maximum book value weightings allocated....

Just goes to show… even at the relatively coffin-dodging old age of seventy one, you're never too old to learn...!

And, furthermore ~ and while I'm here & in the confessional ~ I’m double digits down against Bellway this year thus far…. that hasn’t happened to me since the credit crunch in 2008 so, all in all, it’s a bit embarrassing…

And I’m now due to write my next post on my eponymous blog about this ~ I mean, my investing-career-long battle with Bellway ~ in an effort to exorcise it from my system…

It’s not all bad, mind….. from a standing start in 2000, Bellway were ahead straight away as I didn’t “get” house builder shares until some time in 2003…

By the end of last year, I was 106.1% up on Bellway including divs reinvested on the day, whereas now I’m only 87.5% ahead…

That’s not quite as bad as it may initially seem, as I’m only 10.1% off this year due mainly to your mate Persimmon…

But it is very much an ongoing contest, a war of attrition…!

Strictly

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

RM,

I will give you that one ~ Crest may well prove to be worth a better rating but I’m hopefully erring on the side of caution as they have proved to be rather flaky in the past so what penalty, exactly, does one put on that…?

Even at minus twenty five percent, thus far, Mr Market is chuckling at me….

I would argue that referring to ROI is effectively the same as P/E as a metric and in my view, and as I previously suggested, it’s relevant & helpful to separate underlying performance from price.

Because there’s a lot of difference between a company making a high ROE and a company making a low ROE but both still being on the same P/E.

To be on the same P/E, they would necessarily be selling at very different PBVs.

I have paid quite a high price this year by trying to bring Persimmon into my game based on a high BV weighting based in turn on Persimmon’s high ROE.

So, I have closed my eyes, gritted my teeth, and taken the kick in the gonads in having now sold out of Persimmon, and a lesson learned for me in my personal investing sojourn is not to try to match apples with pears even if they are in the same sector.

So I am resolved, from now (ceteris paribus, and all that fine stuff), not to allocate any company (and by company I mean house builder as that’s all I invest in) a higher book value weighting than the higher of either Bellway or Redrow.

So, bringing Persimmon down to a positive seven and a half percent book weighting, as I have now done, makes it p.ss poor relative perceived value against the others…

Hence selling and taking the kicking…

Ho hum, but then it was that easy ~ no doubt everyone would be at it…

Strictly

“Please check my figures and do your own research.”

RM,

I confess I haven’t done what you’ve requested as I reckon we could potentially dive down a rabbit hole, here….

But let me throw a different thought or two your way to see if any resonate with you…?

I’m suggesting you consider firstly taking share price, as such, out of the equation initially, and just look to find a way of comparing underlying perceived value company by company ~ then you have an assessed constant against which you can apply the variable, i.e. share price.

For me & my investing crew, this comes by way of a book value weighting.

Bellway is my benchmark share, with a book value weighting of nil.

Crest is a long term poorer performer…

That doesn’t make it worth nil, just less….

These things are a matter of judgement, of course, and my call on Crest is a book value weighting of minus twenty five percent.

Whereas Redrow, well since the return of the king at any rate (that’s as in Wishbone Ash’s Argus, not Lord of the Rings, BTW) Steve Morgan after the credit crunch (and yes, I know he’s retired, but his commercial fire lives on), they’ve been a top performer and so, by my reckoning, are worth a positive seven and a half percent above Bellway.

Apply that weighting to the book value per share, and you get a weighted price to book value for each company to use, like a currency, to compare…

And THAT’S the all important traffic light for our investing circle ~ I mean, you can instantly see which share is better perceived value based on the metric of assessed book value weighting…

I’ve been investing for nearly twenty four years, and for the last twenty one of those years solely in house builder shares (apart from a partial & ill advised brief foray into supermarket shares ~ but then Warren Buffett c.cked up on that too, with Tescos, so I was in good company).

I can’t claim to have always worked this way ~ I only came up with the notion of book value weightings in 2014, but this metric has stood the test of time for nearly a decade for me….

But I suppose, for you, this boils down to whether the notion of separating perceived value from price is worth the candle..?

Strictly

"As a smallish investor in PSN (500 shares) & with cash to invest I would be interested in what those more intelligent than me have to say on this subject (are you there Strictly?). Particularly which companies in the sector are best positioned to benefit. "

Gary,

While I don't try to tell folk where to invest, I'm happy to let people know what I'm doing...

Over the past few days, I've been chuntering money across from Redrow to Bellway, such that am now invested:

57% Bellway

23% Crest

20% Redrow.

This is based on my having allocated Redrow a book value weighting of 7.5% above Bellway ~ the latter being my benchmark share.

And these two shares have been wobbling back & forth around each other in terms of perceived best value on that basis ~ which has provided some trading opportunities, albeit modest ones (at least I’m keeping the government’s coffers topped up with stamp duty)

I've been happy to take rather thin return trip gains between Bellway & Redrow of around 5% as, sadly, the more serious share price volatility between the relevant house builders that we’ve seen on occasion in the past has not been a feature of the market, generally speaking, for a while...

Having said that, house builders are still very much the only sector for me, as they have been for more than twenty years, so, as Winston Churchill famously used to say, “KBO!”

Strictly

Crossley,

Send me a separate email for the new GT spreadsheet & I can happily send you one, and I suggest read recent comments on the blog for thoughts on Redrow, et al....

As ever, and as you surely know by now, I don't give advice on what to buy or sell, but just say what I'm doing and why... :-)

You could, of course, put out an APB there by way of a comment requesting viewpoints on Redrow, or whatever, and someone, maybe Muttley or someone else with an (IMO) informed view, may respond ~ but that's their prerogative, not mine seeing as the blog is in my name...!

Strictly

Oi_Oi_

There are better builders out there to consider as options.....

And also.... probably.... at bargain basement prices....

I say "probably", as I don't have a crystal ball and also, sadly, I don't drink with the Captain (Hindsight, I mean).

But forty years' or so track record for some of them does very much stand in their favour...

Strictly