Member Info for strictlybricks

"The really worrying thing from CN has to be that in just 3 short months, their profit projection for full year 23 has dropped by a THIRD, ie 73M down to c50M and their reservations in recent weeks have HALVED from an initial meagre projection - if that's repeated across the other HB's and why shouldn't it, PSN might not make any profit at all this financial year and as such, the divi will undoubtedly be suspended etc etc. "

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Mike,

Whilst Crest may, or may not, prove to be the canary in the house builder coal mine, it's also fair to say that, since Galliford withdrew from house building, Crest have assumed their mantle of being the Vicky Pollard of the sector....

Despite a great run of profitability from 2014 up to and including 2018, since then, there has been the fairy story and then there has been the reality check....

And, for Crest, these have been very different things…

And it's also probably worth remembering that that great industrialist from north of the border, Sir Tom Hunter, lost his shirt on Crest when he bought the company at the absolute peak before the credit crunch, in March 2007 and, due to the credit crunch, they were subsequently taken over by the banks ~ given that they were the main creditors.

A phrase including the words “dinghy hire” and “Niagara” comes to mind…

What I am saying is that, in both their long term past and their short term past, Crest has a flaky track record...

In between those times, the market, of course, got a hard-on for their shares and took the price up around a third higher in PBV terms than that of Bellway & Redrow…

I appreciate that I probably have something of a reputation here for delving into many past numbers for these scenarios, but in the face of a seriously uncertain future, what else do we really have to go on…?

Well, we do have scribblers’ EPS forecasts for this year and next, and 2024 is looking pretty grim on that basis for all the builders…

So, if we’re already invested, I guess we have to make sure we’ve got our big boy pants on ~ supplemented, if necessary, by incontinence underpants ~ and hang in there for what may be a seriously bumpy ride…?

But, then again, of course, just suppose our pal Andrew Bailey, in his infinite wisdom, declares next month that he now feels we’re now at the top of the interest rate cycle, and that the next rate shift is likely to be downwards..?

In that scenario, it would probably take some courage to be betting against the house building sector from that point onwards…?

Strictly

"It makes me laugh as even with poor first half sales they still make £160m and the company get shorted yet holiday companies and the like of rolls Royce have done quite a few rights issues over the last two years and have billions in debt yet their share prices are rocketing up as compared to the bottoms. It doesn’t make sense for a profitable company to take such a bashing??"

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Steve, I've been investing in house builders for more than twenty years and have detailed files (I'm sounding like Arnold Schwarzenegger here...!) on some going back forty years...

And what you’ve described has always been the nature of the market when it comes to house builders ~ it doesn't seem to matter that the best of them have great long term track records for profitability & growth spanning decades....

So, it seems to me that folk have at least three options here...

Firstly, avoid the sector altogether ~ 'cos it definitely ain't for the faint-hearted...

Or, secondly, decide they can outsmart the market & predict the rises & falls and so buy in then sell at strategic moments accordingly...

Or thirdly, and which is my schtick, decide for themselves that, as they ain't smart enough to be confident about being successful with option two but still want to be in the sector because they recognise how good it has always been over the long term, invest on a buy & hold basis (irrespective of whether that includes trading between different builder shares in the interim as is my way) and resolve to be somewhat Buddhist in their approach to soften the dukkha that almost inevitably comes as part of this game.

Because that definitely helps…

I mean, recognising and accepting the nature of the game, and understanding that it ain’t likely to change just because little old them has decided to join in…

Strictly

“In an economic climate like this, mitigating risk is always my priority.”

………………..

Lorenzo,

I am with you on this…

However, there’s market risk and then there’s value risk, and they are two VERY different things.

I am not too bovvered about the former ~ having remained fully invested for the past twenty three years except for partially swerving the covid tsunami ~ but much interested in the latter.

A driver for me for having now put around 10% of my capital into Taylor Wimps (all in house builder shares, hence the moniker) was already having money in Persimmon.

I always took the view that although PSN significantly outperform all the shares I monitor, their previous exceptionally high PBV was driven by the very big percentage of earnings paid out in divs and the seeming lack of understanding by investors about what that does to long term relative value..?

So, I understood the likelihood that, when the div music stopped at some point, the share price would likely fall further than for the other builders ~ as, indeed, it has done.

But, in buying into PSN last autumn, I did a Syd Barrett ~ I mean, I reached for the secret too soon, as I should have waited (where oh where is Captain Hindsight when you need him?).

And that happened because I had allocated a big weighting to PSN to recognise its splendid ROE.

Perhaps too big? ~ I may or may not have called that right for the longer term but as of now, Mr Market is thumbing his nose at me & laughing…

It’s probably not a coincidence that the market gives a higher PBV to BDEV, PSN and TW. than to the others I follow as these are the 3 house builders in the FTSE100.

So, whereas I have BWY & RDW on PBVs of 0.75 & 0.82 respectively, I have BDEV, PSN & TW. on PBVs of 0.98, 1.13 & 0.93.

Here’s where, if you’ve read this far (& well done for that!), you’ll likely to start to zone out..?

TW.’s 5 & 10 year performance is right up with BWY & RDW, but, like all of them, well lagging PSN.

I have now allocated PSN a lower 20% weighting against TW. ~ and that puts their weighted PBV right on par with each other.

And, having put around 25% of my money into PSN last autumn, that is now split around 15% PSN & 10% TW.

So, my game is trading between house builder shares to perpetually pursue best perceived value ~ and that’s worked very well for me for more than two decades.

So, having possibly c.cked up last autumn, I now potentially have a separate trading game to play between PSN & TW. with the smaller part of my invested capital, while the larger part can still move, as things stand, between BWY & RDW.

‘cos what it’s about for me is more trades being right rather than being wrong over the longer term…

Capiche..?

(it’s probably as clear as mud..?)

Strictly

"It could be the effect of the discounted land they bought in Covid starting to coming through. The £500m rights issue they raised to buy land in mid 2020."

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

HC, thanks, I hadn't considered that ~ possibly because I haven't followed Taylor Wimps as closely as I have some of the others but more likely because I hadn't had breakfast at the time of writing...? :-)

This has potentially put Wimps more onto my radar, now, though, subject to doing a bit of further research on them...

Strictly

I guess I could have more appropriately posted this on Taylor Wimps chat, but there you go ~ it seems easier to stick to one chat site at a time and I’m quite a simple soul really….

The figures & outlook for TW. all seem pretty good, given the times were are experiencing and, thus far this morning at any rate, Mr Market seems to concur…?

However, something that did catch my eye, and maybe others here might have something to say about it and especially if they’ve picked up on something that I’ve missed (I haven’t had breakfast or any coffee this morning yet, and I am prone to senior moments…) was that land bank plot cost as a percentage of average selling price on approvals is down from 20.8% for last year’s half time whistle to 12.9% this time…

Bl.ody hell, that’s a 38% drop ~ so far, in fact, that it almost puts Taylor Wimps into Persimmon territory in this respect…

I say this because Persimmon’s much superior return on equity, derived mainly as far as I can see from their very low plot cost as a percentage of sale price, is the main reason I’m holding their shares even though their price to book is still relatively high when measured against my other holdings, Bellway & Redrow…

So, does anyone have anything to contribute here on this….?

Or maybe I’m the only person seeing this as potentially a big deal…?

Strictly

Crossley ~ do keep up...! :-)

Strictly

Crossley ~ I put the details on the SB blog on the weekend, and which I think you're now signed up for..?

Strictly

Armani,

I'm imagining that there might be one or two readers here starting to think that we both need to get out more...? :-)

But thanks for that link....

Strictly

Armani,

Three events due this week, which may or may not prove to be at all significant, and two more next week....

Tomorrow, being the first of the new month, we should have the Nationwide's July figure for house prices….?

Despite the assembled pundits & experts talking the housing market down, the fact is that house prices have now risen for four months in a row to the end of June….

Whether the next figure, i.e. for July, breaks that run or further extends it, I guess we’ll just have to wait & see…?

As you have rightly said, Taylor Wimps’ half time whistle is due this Wednesday… being a FTSE100 boy, the figures may have a bearing on market sentiment…?

One way or t’other, of course…!

Then Thursday, the sage folk at the Bank of England are due to announce any interest rate update…. my understanding is that a quarter percent rise is pencilled in by the market….

Again, if it varies from that, up or down, I imagine it’s likely to have an effect to some degree…?

Next week, of more direct interest to me as a shareholder, and also therefore I imagine to many readers here, we have Persimmon’s half time results due Thursday, preceded the day before by Bellway’s trading update (of particular significance to me as they are by some margin my biggest holding across my spread of just three different shares).

So ~ how might things be looking a fortnight from now…?

I offer no insight into this…. :-)

Strictly

"Do you ever trust in these so called pro broker ratings, at all?"

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DJ,

I don't ever get as far as even looking at them, to be honest....

I do use the scribblers' EPS projections, though, and let them have an influence where they seem to make sense....

You do get some companies though ~ such as Battersea, whom you would know by their official name of Vistry and previously Bovis (which just goes to show that, when it comes to names, they can run but they just can’t hide) ~ where it seems to be a perpetual triumph of hope over experience…

Because maybe one day Vistry will come good ~ but, against that, they have a twenty five year track record of being a pile of p.op… at least, in relative terms, against Bellway…

Hence Battersea…

Back to the nature of things, and all that..! :-)

Strictly

DJ,

House builders have a great 40 year track record, not just 20 years...

And the most dangerous four words in investing are reckoned to be "It's different this time"...

So, that's what it all boils down to, really...

I absolutely don't do recommendations but, as I said before, I'm fully invested, and it’s all in house builder shares, and I'm happy with that...

Of course ~ you don't know me from Adam...

I mean ~ it really is up to you to decide for yourself whether anyone here seems to be talking sense, or complete b.llocks..?

But good luck anyway, and maybe we’ll be chatting here again at some point..?

Strictly

DJ,

Obviously I don’t know whether you are seriously interested in all this or were just throwing me a stick, but, having reflected, I thought I’d put this up here for you, and perhaps others, to conjure with anyway…?

This is PSN chat, and I’m using BWY numbers, but here seems to be where it’s at these days…

All my house price numbers are from the Nationwide’s website, so blame them if they’re wrong.

House prices peaked in 1989 Q3, and didn’t recover fully until 1998 Q1.

In the pit of that, they were selling @ only 2.8 x earnings by 1995 ~ ah, those were the days to buy a house, but we are where we are.

So, anyway, that was a tough time for house builders.

However, if you look at how Bellway fared, their ROE was top notch @ 23.5% in 1989, but fell through 10.5% to 7.2% in 1991.

But that was the bottom ~ in the ensuing years, they went from 8.3%, to 20.0% in 1993 and kept that up, averaging 20.9% over the next 11 years…

So most Bellway investors were surely happy bunnies…?

Scroll forward to more recent years… 2020, and a right hook in the form of covid arrives ~ ROE drops from 21.1% to 6.5%, followed by an uppercut from the cladding issue, aided & abetted by our pal Gove, and another cr’p year with an ROE of 5.3%.

Come 2022, back up to a respectable 15.5%, but now we’re drifting again from a series of headwinds brought about by the adventures of Vlad ~ forecast ROE for this year is only 6.4%.

So, if you want to turn back round in the driver’s seat and now look out that very murky windscreen ~ which to me is a scary thought ~ you might just take some comfort when you apply the past to it…?

I mean, Bellway ~ as the most sensible representative of the sector, which is why it’s my benchmark share ~ have come through their share of sh’tstorms and, IMO, have weathered them all well… they might have been rocked by a few punches, but in forty years on the stock market they’ve never had to take a count on the canvas…

As you can see, I am not trying to call the future, but I am pretty Buddhist in my investing approach, and a big part of that is seeing & accepting the nature of things ~ as it is that which usually shines through in the end…

And as far as I can see, the nature of Bellway is to be pretty resilient, and to be good at bouncing back from setbacks given a year or two to sort themselves out…

So, everyone has to decide for themselves, of course ~ as I’m taking it that you’re all over eighteen and therefore old enough to fight & die for your country ~ but I remain happy about being still fully invested across house builders for the longer term (well, “longer term-ish”, as I’m now in my seventies..!)

Strictly

DJ,

To try to answer your question as fulsomely as I suspect you would like would be quite a mission..!

I would suggest clicking on my name at the top and scrolling back through my stuff, and you’ll no doubt then understand that my investing is based on looking through a clear rear window rather than a murky windscreen ~ not a universally popular notion in these parts, but there you go…

The nearest I think I’ll go with this is to say that I’ve averaged 17% a year gain over the past 23 years, but I’m currently passage planning forward from here long term for only half of that….

That’s because I’ve had a concern for at least the past thirty years that one day, as a nation, we will go into a recession that we don’t quite come out of, and how things have panned out since covid makes me think this might be the one…?

I do hope I’m wrong, of course, but I’m hopefully erring on the side of caution… I mean, if the metaphorical cake is smaller then there’s less to share between the interested parties ~ the customers, the workers and the capitalists (us!).

So, your thought may be, “Why don’t I look at other sectors, then…?”

Well, I have, from time to time… to me, they are all nightmares for one reason or another, and that was before the troubles we may have sailed into…

I have remained thankful to providence that I saw, & fully recognised, the great opportunity that was investing solely in house builder shares twenty years ago now…

I usually come back to Mark Twain if I’m experiencing any doubt on occasion…

“Buy land ~ they don’t make it anymore”

I don’t suppose any of the above is much use, really, but perhaps you might get something out of reading back through past missives…

Unfortunately, I’m not the most succinct of writers so, if you do get stuck in, my apologies for that..!

Strictly

Avocet,

I would describe the discussion I’ve had here with RM over the past few days as being pretty constructive for this chat site….

And I’m imagining that his (I’m making a gender assumption, there, of course…) comment just earlier was directed at me as much as at anyone else ~ seeing as we’ve been debating the relative merits of Persimmon & Crest…

Beyond that, I’ll leave RM to fight his own corner, but in my view there’s nothing wrong with a bit of banter along with the chat if it’s all cordial enough…

And, fair do's ~ he's got it right as far as the relative price movements went today... :-)

Strictly

RM,

Someone recently put up a comment here asserting that 90% of investors lose money…

I don’t know about that…?

But my point is that, after more than twenty three years in this managing my own investments malarkey, I fully buy into Warren Buffett’s adage that it’s better to be approximately right than precisely wrong.

And even though the man himself is in a somewhat different game to me, his principle still applies insofar as, twenty years ago, I identified for myself that housebuilder shares were the only sector for me to invest in ~ whereas most of the stock market, to paraphrase Kipling, is a trap set by knaves for fools.

And, for me, that has proved to be correct for the past two decades ~ the FTSE100’s gone virtually nowhere in all that time so has essentially delivered just dividends, i.e. a few percent a year, as a return, whereas my game has delivered an overall average return of about 17% a year.

Now, to make this relevant to our conversation, I have to own that I’ve made many investing mistakes ~ far too many to be self-flagellating with a full list of them here…!

And the most recent one of these mistakes was in buying Persimmon too soon last autumn…

This is a risk of being constantly prepared to move between different house builder shares ~ ever seeking best perceived value…

Overall, though, that strategy has worked ~ for me and for the others in my circle who’ve followed me into this ~ it’s been part of making that average 17% a year, even though I was truly hammered in the credit crunch due to owning a lot of highly leveraged Barratt shares at the time…

University of life, and all that…!

And it’s good for the government too, as they get plenty of stamp duty from the trades ~ there have been mutterings about abolishing that… that’d be nice..!

So, to further the point about Persimmon, I allocated them too generous a book value weighting in the autumn, and the ongoing ponder on this for me is whether their now reduced weighting is still too high…?

I mainly bought Persimmon for their significantly superior freeboard heading into uncertain seas ~ which is still, in my view, where we are ~and it may prove to be that, even from here on let alone from last autumn, that I’d be better off spread fully across just Bellway and Redrow, as I had been…?

I hear all you say about Crest, and you may well prove to be right, but I tend to be pretty wary of Vicky Pollard type companies, of which I see Crest in recent years as being one, but maybe my wariness is unnecessarily excessive…?

The bottom line for me remains about being approximately right though… in the world of likelihoods, holding Persimmon is hardly like the nightmare of having held, say, Vodafone, shares for the past twenty years…

Now, THAT was precisely wrong..!

Strictly

RM,

You're referring to the reign of King Jeff (Fairburn)...

There's quite a background story there....

If one takes it that Jeff was behind the big decisions back in the day, then, I think one must come to the conclusion that while he was a greedy b’stard who ended up crawling under a rock for a while when he incurred the opprobrium of the nation, he was also a clever one…

He mugged shareholders ~ and they have to take responsibility for being outwitted, though they probably won’t as, these days, whoever says “It’s a fair cop, guv”? ~ when he signed them up to a big bonus for the directors… based, I think, on the share price performance….

The share price at the time was right in the trough like all the builders following the credit crunch…

What Jeff thought to do ~ and given that Persimmon had always been a very profitable business, the Ryanair of house builders ~ was to commit up front to give away nearly all the coming nine years’ profits in dividends, billed as a shareholder capital repayment plan.

That was a very bold plan at the time…

And it really did look fantastic given where performance & price were at the time, and the Sids & Dorises of the world got dividend happy and went for it in droves ~ and drove the share price right up to the sky as I imagine had been the plan?

Though when I put the figures up against the likely performance of Bellway et al, it wasn’t really that special ~ just that, clearly, the big shareholders went straight to hard-on, bypassing due diligence on the way, and didn’t pay attention to the fact that good old Jeff had made it an open ended bonus….

If the MD had been named Dick Dastardly rather than Jeff Fairburn, maybe the shareholders might have seen him coming…?

Anyway, he ended up with around £100 million bonus, I recall, though this was cut back to £75 million due to the media storm, and then he did subsequently give about threepence to charity following all the bad press heaped upon him ~ not least by Liam Gallagher, a well respected economist who writes for the Telegraph…

And then Jeff went to Avant Homes, and I just checked while writing this and he’s since left there too…

And it seems that Persimmon want to distance themselves from their past too (though not to the extent of changing the company name, as Bovis did & morphed into Vistry…. as Richy Rich said to the burglars in Home Alone: “You can run but you just can’t hide..!”) and they do pay a lot of lip service now to build quality…

And that has also coincided with getting their previous miserable three star HBF rating up to five stars as of 2022, so if that means anything real then clearly it’s working…

Anyway, my apologies for such a long-winded response, but then I’m not known for my succinctness on our blog either ~ so it’s habit, really…

Strictly

RM,

I am partly with you on this, so we seem to not be on entirely different investing song sheets..?

However, in our investing circle, we use a contrivance we term weighted book value ~ essentially saying in this case that a £1 of Persimmon book value is worth more than a £1 of Crest book value to the extent that, in weighted book value terms, Persimmon is cheaper.

In our game, everything is benchmarked against Bellway ~ which I consider to be the Ghost Dog of house builders….

Where, I would say, we differ, is that ours is largely a rear window investing strategy as opposed to a through-the-windscreen one ~ i.e. based very much on track record rather than surmise about what the future may or may not hold….?

Crest has a significant negative weighting (though not as low as Vistry’s) and Persimmon has a significant positive weighting.

The only other company with a positive weighting against Bellway, albeit a small one, is Redrow ~ we see Bellway & Redrow as pretty close to being on par with each other.

The tricky bit, of course, is to allocate weightings well enough to end up with a “currency for shares” that gives an overall advantage.

I’m happy to put my hand up and acknowledge that, like Syd Barrett, I reached for the secret too soon when it came to Persimmon ~ by which I mean that buying in last autumn, thus far, has cost me as compared to if I’d remained solely invested across Bellway & Redrow, as I had been at the time.

However, overall (and ignoring a successful covid swerve in 2020 which further helped), since 2013, when I started measuring investment performance against Bellway more accurately, this has given me about a 6% average gain a year advantage over Bellway due to trading between house builder shares utilising weighted book value as a currency to compare price at any time.

This may sound modest, but compounding means that’s a doubling every twelve years over and above just buying and holding Bellway.

So, to sum up, you may well prove to be right about the degree of headwind that Persimmon faces ~ especially as you could argue that you’ve been right so far.

But I remain comfortable with my holding of Persimmon along with my other two in Bellway & Redrow and my reasons for buying, which I’ve gone into in some depth in the past here and which obviously you could check out if you click on my name at the top here and scroll back far enough.

Strictly

RM,

You’re opening up a discussion about underlying factors, here, which for me is more interesting to discuss than any speculation about short term share price movements, which I tend to avoid like the plague…!

If we take past, rather than forecast, return on equity ~ otherwise we’re into to surmise, which I don’t want to do ~ we have Crest having just made an ROE of 13.2% after three years of going absolutely nowhere….

To describe that in highly technical terms, I would say that their past four years, taken as a whole, equates to an absolutely p.ss poor performance.

Last year might put Crest on a P/E of 5.2, by my reckoning, but averaged out over the four years it’s around 20.

Whereas Persimmon are on a retrospective P/E of 4.5, with their hugely superior ROE as a bonus.

As I said before, we could speculate about where it goes from here, but I have a lot more faith in actual track records than companies that talk the talk but subsequently don’t walk the walk ~ and, IMO, Crest are guilty as charged on that one….

This is all stuff I’ve been thinking about today following the market suddenly acquiring a stiffy about low inflation, in order to write a post for a private blog for my crew…

How I see it is, if I suspend my cynicism about the competence of number 11, the Bank of England, and various assorted punditry, and take on faith that, overall, they are more or less right about the prospect of rapidly falling inflation now being hot on the heels of recent rapidly rising inflation, and if, over the next one to two years, interest rates reflect that fall, then in whose interests would it be to put borrowers under excessive pressure such that it forces many repossessions…?

The mood music on this seems to be much more leniency than in the aftermath of the credit crunch…

And if we end up with two years in all of around 10% inflation and if house prices hardly move, they’ve become around 20% cheaper in real terms, most folk will have had a couple of reasonable pay rises in the interim, and it surely seems reasonable that mortgage interest rates will, more or less, follow interest rates set by the Bank of England.

So, speaking personally, I’ve had a rubbish investment performance in market price terms since the end of 2019 ~ I’ve gone pretty much nowhere, backwards or forwards over that time taking into account dividend payments…

But I had a great preceding twenty years, and also the shares I’m holding now are at around half the PBV they were at the end of 2019…

I regard that as a lot of dry powder, and unless the situation starts to unwind from here in a manner that is radically different from the above scenario, which is essentially light at the end of the tunnel in a couple of years, I see no reason to panic at this point…

But sadly, I’m not drinking buddies with that old b’stard, Captain Hindsight ~ who is never there when you need him ~ so what do I know…?

Stri

RM,

While I have absolutely no view to express on short term share price movements, I would agree that PBV is probably pretty much the best overall metric for comparing house builders with one another when they are similar beasts ~ like, for instance, Bellway & Redrow...

But based on track record, Crest and Persimmon are the most dissimilar companies to each other of the house builders I monitor, apart from Battersea ~ whom, controversially perhaps, I consider to be something of an investment basket case insofar as their track record is concerned so they aren't anywhere near being in the frame for me.... (average reality check ROE for Vistry for the past five years, 3.3%)

But, for the past five years, Crest have an average return on equity of only 7.2% whereas Persimmon have done more than three times better at an average of 22.5%.

And while it would take a braver man than me to suggest that Persimmon are going to achieve anything like that for the next year or two, it would also take a much braver man than me to suggest that, from now on, Crest are going to somehow manage to match Persimmon in what they do, actually, achieve....

Of course, they might ~ but I'm more comfortable in the world of likelihoods rather than that of predictions, so I'll leave it to others to venture a firmer view about all this....

Strictly

That should have said 30% not 30p...

A bit early in the day for me....

Strictly