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"I've run your financial points through a Sharepad filter and It churns out these companies:

If we discount FXPO (high risk right now) and ITV (basket case) we're left with 4 builders, fags and facility management."
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Moneybox,

That you've taken the trouble to give this some consideration to come up with a list is worth responding to...

I couldn't imagine myself investing in fags...

While I'm not a buddhist, I do subscribe to some of their thinking, and "right livelihood" would be part of that which would certainly kibosh investing in cigarette companies for me (though I'm not passing judgment or taking a moral view in respect of anyone else's investment choices here, it's a personal thing for me).

I've never looked at FPXO, so I'll take your word on that, and, as you imply, what sort of road are ITV on..?

And I've not looked at Mitie, though, now you've raised it, I might take a quick butcher's and get back to you on that?

Which leaves the builders.

I'm entirely invested right now across just two companies ~ Bellway & Redrow ~ so nail very much on the head with those...!!

Berkeley I instinctively never trusted and in particular their intended wheeze pre-credit crunch to complete a big shareholder capital return plan and award themselves (by "themselves", I mean the board of directors) a bonus of (I think it was?) around £500 million in all.

That's where King Jeff no doubt got the idea, and it was always bo..ocks from an investor's point of view IMO ~ a huge payout for nothing special and the destruction of shareholder value by paying out far too much in dividend, etc, on a high PBV (the high PBV resulting from the excitement caused by the big divs, but I don't think it's a very popular point to make on this particular share chat).

So that leaves Taylor Wimps...

They and Barratt are not far from being in the frame for me, but are long term lesser performers yet still being more highly priced on a PBV basis makes for quite a gap.

The other company of interest to me ~ one that is in the frame (by that I mean that it's close enough for me to be calculating BVPS for every month end or ex-div date ~ and that typically comes out within 2% of accuracy which is sufficient for me as I look to trade between these companies on a minimum perceived value gap of around 5%) but they are currently indisposed with recent poor performance and a projected lower ROE than Bellway and Redrow.

They do have a tendency for a touch of the Vicky Pollards too, which is a tad disappointing.

To sum up though, I'm now 70 years old, I've honed my game over more than twenty years, and I'm a lazy git when it comes to it.... so I'm now at the point where if it don't need mending don't fix it... twenty two years to the start of this year have returned an average 20% a year, and I passage plan forward at 15%.

Happy to chat further about it if you like..?

Strictly.

CSDI & BB,

With the notable exception of the covid iceberg, which I did manage in large part to swerve, that was the only occasion I have been other than fully invested in twenty two years

And, as I don't expect to be able to spot another iceberg coming, I anticipate gains to come from three things:
1) underlying gains made by the companies themselves, comprising both retained BVPS and dividends paid.
2) trading between different house builder shares, continually pursuing perceived best value.
3) increased PBV.

Number 3) has had a significant part to play in a comparison of Bellway, Persimmon and Redrow for the period 2013 to 2019 inclusive ~ I'm choosing that period as it doesn't include my "cheating", i.e. going partly to cash to my advantage.

Over that time:
Bellway's share price increased 268%, from 1,037p to 3,819p, and PBV increased 41% from 1.11 to 1.57.
Redrow's share price increased 370%, significantly better than Bellway's, from 161.5 p to 759p, though their PBV increased similarly to Bellway's, 52% from 1.07 to 1.63
Persimmon's share price increased 236%, similar to Bellway's, from 800p to 2,686p, but at the cost of a much bigger PBV increase ~ this was 92%, from 1.41 to 2.71.

Sorry that this is a lot of numbers...!

Sticking with price movement rather than value movement, and now including dividends re-invested, and also annualising the gains, Bellway has made an average gain of 24.2%, Persimmon 24.8% and Redrow 27.6%.

This was a particularly fecund period for the sector, and what's more, both Bellway and Redrow achieved it, like Persimmon, with the helping hand of PBV rise, but, unlike Persimmon, this didn't take them into eye-watering PBV territory (that covid subsequently whacked prices the following year is neither here nor there for this)

The core aim of my investment strategy or, at least, it has been since 2013 when I upped my game on record keeping, is to beat the benchmark, i.e. Bellway, by an average of 6% a year.

This rate results in a further doubling every twelve years.

For that period, I averaged 31.4% a year, so I beat Bellway by an annualised 7.2% ~ which I am more than happy with ~ and Persimmon by 6.6%.

I was more tardy against Redrow, but then I'm not fortunate enough to be a drinking buddy of Captain Hindsight (who is never there when you need him, is he..?) but I'm not intending to beat myself up about that.

I am likely the wussiest investor you'll come across here ~ I am more fearful of being in cash when I should be in shares than I am of being in shares when I should be in cash.

So, going partly to cash in 2020 was a risky, and probably one-off, aberration for me, as I don't see myself doing that again any time soon...

Another time, there might be a discussion to be had about the Credit Crunch ~ unlike my covid investing experience that was one beast of an iceberg I steamed smack into..

Don't mention the war, and all that..!

Strictly

BB,

Firstly, re Redrow being an outlier...?

No, it's very close to Bellway in being perceived best value for me ~ no other companies come close for me ~ and the upshot is that my entire investment pot is spread 90% Bellway and 10% Redrow.

That might make some here shudder, but I've been in this since March 2000 and have been more than happy to be 100% invested in a single share at times when the perceived value suggests I do so.

To your other question, let me use the period for 2013 through to end 2021.

This is the period for which I have, as Big Arnie would put it "detailed files" and I haven't sorted 2022 yet.

Two components to this:

Firstly, the underlying percentage gain in book value per share and, secondly, the impact of increasing that by re-investing all dividends on the day received...

Capiche..?

I mean, for example, if Persimmon paid out a 60p dividend on a day when their price to book value was exactly 3.0, you could re-invest that back into Persimmon shares and buy 20p of book value.

That, to borrow from the Stones, is through the past darkly.

To look at it with more realism & clarity, Persimmon's dividend policy combined with their high PBV has just cost investors 40p of book value for every dividend in the process of book value to dividend back to book value...

Hopefully it makes sense...?

To put actual performance on this, for the period of 2013 to 2021, Persimmon made 201.2% book value gain including the shares bought with the dividends re-invested on the day.

By contrast, Redrow made 334.3%.

And Bellway made 274.7%, so they trail a bit over that period but over the long term they have knocked Redrow into a ****ed hat ~ and also, while they are currently underperforming Redrow a tad by way of ROE, they do have other attractions, notably that they, once again, (just like coming into the Credit Crunch) have the strongest balance sheet in the sector.

Not for nothing are they our investing group's benchmark share and not for nothing are they affectionately known as "Ghost Dog" ~ but you would have to know the film to get that...! ??

And my final point on this, if you think about it, is:

If current dividend & performance trends continue for the companies referred to above, Redrow & Bellway are going keep on increasing their book value at a significantly faster rate than Persimmon, and, even though Persimmon (on any recent year's figures) well outperform the others, that doesn't give the full underlying picture...

Which is that Persimmon need to run faster & faster even just to try to stop falling behind at an ever faster rate than they are doing now....

But if investors don't step back to look at this bigger overall picture, while they might well be singing “I’ve got ninety thousand pounds in my pyjamas…” when the div arrived, actually, they ain’t doing quite so well overall as they thought…

Strictly

"Also their dividend schedule is bizarre to say the least inmv. "
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Upo,

Persimmon are one of the very small number of companies I monitor given that, as the name implies, I only invest in house builder shares.

Of the house builders I keep an eye on, Persimmon are in a class of their for return on equity in recent years ~ however, for the reason given below, apart from anything else, I don't invest in them.

You probably know the back story to the dividend policy...?

It comes from the time of King Jeff, who copycatted Tony Pidgley's game of a big shareholder capital return plan which, funnily enough, also incorporated a big pay day for Pidgley and his pals if they pulled it off...?

Sadly, for them, they didn't ~ as the whole idea was bushwhacked by the Credit Crunch, whereas, in sharp contrast, as pretty much the whole country knows it went wildly well for Jeff and his cronies...

My next point is likely to be contentious, as others here may not see things the same way...?

As I see it, however good Persimmon are at their game of top-notch bottom line performance, they are now victims of their own success in respect of their dividend payment policy.

Because it has pulled in investors so well that it has taken Persimmon's PBV well up out of the usual range for house builders ~ and I've been tracking this stuff going back forty years (well, I've been in this game for twenty, but have figures going back much further).

For much of the time they've been paying big dividends they've been up around 3.0 PBV and, even now, they're at around 1.7 compared to fellow FTSE100 builders Barratt and Taylor Wimps at around 1.1 and 1.0 respectively.

The upshot is that they continue to pay nearly all of the earnings out in dividends, because otherwise how do they cut back without seriously upsetting the market ~ given that the direction of travel of dividend size would then be opposite to other big builders..?

Which, in turn means, there's relatively less business growth, and meanwhile, at a PBV of 3.0, investors have effectively shed two thirds of the earnings because that's the difference between the return on equity achieved and the dividend yield ~ all very nice to have arriving in your bank balance though it may be.

To put some numbers on this to back up what I'm saying:

In 2013, reality check earnings for Persimmon were 90.8p EPS compared to Redrow's 15.7p, i.e. 5.8 x higher.

By 2019, the last full pre-covid year, Persimmon made 253p EPS compared to Redrow's 77.6p, i.e. now only 3.3 x higher.

And on top of this there's obviously a sizeable risk of a further relative slide in Persimmon's share price compared to Redrow et al.

That's a risk I don’t want to take ~ apart from the significant dilution of shareholder value because of the big divs paid out.

Strictly

MM,

Nothing too complicated to sort the book value per share in how I do it, as follows:

Take the net balance sheet equity of the most recent balance sheet, knock off any goodwill & intangibles (a lot of that on Barratt's balance sheet, but Bellway and Redrow are fine), and divide by the number of shares in issue (some companies are better than others on updating that) which gives you BVPS per the accounts date.

Then take the estimate of earnings for the year (for this calculation, this is often weighted between the two halves of the year as companies usually seem to have a tendency to make more in one half or the other), divide by 12 (notwithstanding any weighting) and multiply by the number of months gone.

Adjust for any ex-div date passed, and that gets you there...

May seem convoluted, but once you've figured out the accumulated formula you need, the spreadsheet automatically updates any revision in projected EPS.

And I'm typically within about 2% of accuracy, which is good enough to trade for the gaps I take.

Bellway is my benchmark share, and since I've been keeping accurate records for this, from 2013, I'd beaten Bellway by around 6% a year... may not sound much, but that doubles your money over what you would otherwise have had over 12 years.

Largely swerving the covid iceberg in 2020 has upped the average to around 10%, but I consider that a one off, fairly lucky move, and anticipate the average will slip back again in due course.

The thing with this is, I may now be an old fart of 70, but I have a lot of younger people in my group whom I'm helping with this and over a 36 year period, this performance results in three doublings above buy & hold which means ending up with eight times the invested capital ~ so it really is worth paying attention, apart from the pleasure of itself in beating the market, albeit slowly.

But, to return to your question directly, no, I never mess with the figures on balance sheets, revaluing landbanks or whatever, I'm not that clever.

I do, however, completely ignore declared EPS figures, which are often great works of fiction, and simply go from BVPS to BVPS adjusted for dividends paid to find "reality check" earnings...

Some companies, notably Galliford, are a nightmare with this.... they so baffled themselves with their own bulls..t a number of years back that they had to do a rights issue in the middle of the sweet part of the cycle, FFS!

Bellway's weighting is zero ~ it's my benchmark after all...

Currently, Redrow is on + 10% as its ROE is somewhat higher. But that means that, as of close of play tonight, Bellway is 4.4% perceived better value than Redrow.

I have been trading from Redrow to Bellway over the past week or so to take a 6% gap, but it's now closing again.

Bellway has a stronger balance sheet. As at the most recent balance sheet, overall liabilities were 32% of BS compared Redrow's 54%.

Strictly

"This time round RR is being smart, and share price is outperformng BW's for the first time in 20 years."
..............................

MM,

If you've looked at 20 years or more across these two companies then that suggests you pay attention to long term track records for this sector, as do I...

I've been in this for around 22 years but have the key numbers on Bellway going back almost 40 years...

It might be interesting to know more about how you're defining "outperforming"?

To give you a brief synopsis of how my investing circle looks at this in case it's useful at all, we give a book value weighting to each of the house builder shares we track, and from there come up with a price to weighted book value.

The weighting is our best assessment of relative worth for each builder per £1 of book value, and takes into account such things as (primarily) medium and long term return on equity, dividend policy, consistency, balance sheet strength, etc.

So, it is an amalgam of these to come up with a view, for better or for worse...

And part of this is getting to a more accurate book value per share, assessed for each month end or ex-div date, and the track record for this is that it mostly comes out within 2% accuracy once the next figures are published. For the most part, we're happy to trade on narrow perceived value gaps, but not generally less than 5% so the 2% accuracy is good enough for purpose.

Bellway ~ the Ghost Dog of house builders in my view ~ is a company I have a high (no, make that the highest) regard for and is one that I'm prepared to be 100% in if the perceived value gap is worth it (IMO, of course).

Some of my fellow investors find that prospect a tad unnerving, but then they're making their own investment decisions at the end of the day and twenty plus years in this says it works well enough....

Not stellar gains, perhaps, but it's definitely been like winning the lottery in slow motion.

So, the upshot of my long preamble is that, in our process of finding best perceived value, Redrow & Bellway have criss-crossed each other continually.

Obviously, we can't call this in advance ~ not being drinking buddies with Captain Hindsight ~ but when the perceived fair value point coincides with the gap between the two prices, it offers opportunities to trade while still continually seeking best perceived value.

Hope that makes sense, whether or not it's of any use....?

I find it's often worthwhile discussing this stuff with others who are thinking about it to some depth, regardless of the degree to which they seem to be on the same song sheet on this...?

Strictly

"BWY should take a leaf out of RDW's book and start their own share buyback."
...................................................

Demos,

Perhaps this is a tricky one...?

In the forty years I have figures on them for, Bellway have never engaged in anything like that as far as I can see, and they have consistently paid one third of earnings as dividend throughout without being tempted into any "Me-too" wheezes with special dividends ~ even Redrow joined in on that a few years back with that special share issue & cancellation malarkey on every (I recall?) 33rd share.

Bellway's management is sober, stable and experienced over the long term, whereas Redrow got into bovver once, up to and during the credit crunch, and Steve Morgan had to return to sort things out, firing the management in the process, and in recent times they've been through a couple of changes at the top again ~ perhaps bringing new thinking, wheezes even...?

Bellway also has the best balance sheet in its peer ground, which, combined with all the above, makes it the safest in the sector to invest in as far as I'm concerned.

They remain the Ghost Dog" of house builders, in my view, and, for the absence of doubt, that's intended as a compliment to them (see the film with the same title to understand that).

And yet, they have announced a shift ~ in that they are, for the first time ever, intending taking the dividend up from one third of earnings to two fifths of earnings in 2024.

Wow, for Bellway, that's a significant move.

And yet, it's still very sober isn't it...?

No share buyback announcements, no flurry of excitement about returning capital to investors, just a calm, simple decision that clearly they don't need to retain quite so much of their earnings so the surplus can be paid out to investors in the traditional way, sans hype...

And taking all the above together with their average long term return on equity of 16% and being currently bargain-basement priced at a PBV of below 0.9 is why my investment capital is overwhelmingly in this one share for the time being ~ as you already know from communication we've had elsewhere outside of this chat forum.

Of course, I could be wrong ~ but then it's my own money I'm investing and I’m simply following my own judgment on this for better or for worse...

Strictly

bakuraru,

You may well be right re interest rates ~ I make no prediction about those or anything else....?

I've been investing for myself for more than twenty two years now ~ for nineteen of these, solely in house builder shares ~ and I'm far more comfortable using the rear view mirror than the windscreen and that's served me well to date.

Another useful item on the Nationwide website ~ and I would recommend taking a look there ~ is their graph of house prices since 1984 adjusted for inflation.

This graph also includes a trend line which is inflation plus 2.5% a year which is the overall trajectory of house prices over that period.

For the two periods of house price drops referenced in my earlier post, prices had gone way above the trend line, whereas right now they are some way lower.

I have figures on Bellway going back forty years and the only time they lost money ~ and even then it was only a smidgen ~ was 2008 and 2009, though they always paid a dividend.

Their average annual return on equity over forty years has been 16%, and I'm very happy with that as a base line from which to then trade between different house builder shares, as perceived opportunities arise, for additional gain, and that's been a simple & straightforward strategy that's worked for me throughout without having to try to call the future ~ which I have zero ability to do.

Having said that, I do have concerns about the economic prospects for this country, they may turn out to be very grim, but while cash would have been the place to be for this year to date (and wouldn't it have been wonderful to have been having a drink with Captain Hindsight at the end of last year and he'd given a heads-up about how things would go), where we've ended up is that, beyond a real meltdown, Bellway shares, et al, are now IMO stupidly cheap.

I did largely swerve the covid iceberg at the end of February 2020 ~ the only time I've ever managed to do something like that so I feel I got lucky ~ but back then their shares were at about twice the PBV that they are currently, so it wasn't too hard a call to make.

Outside of that, since my start in spring 2000, I've always remained fully invested throughout.

So I suppose that all that is a roundabout way of saying that we are now where we are, and personally I don't have the cojones to go to cash when the likes of Bellway shares are selling at such perceived bargain basement prices...

In all likelihood, of course, rather than being a certainty... :-)

Strictly

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