Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
RM et al,
I've just done a quick assessment of Crest 2023 earnings based on the information that is now out there and have marked Crest down to a forecast EPS of 4.5p for the year ~ which hopefully puts me on the right side of things…?
As follows:
£41m “adjusted” profit before tax
Less £11.5m previously notified and £13m notified this morning of one-off costs = forecast net profit before tax of £16.5m
Less Corporation Tax of 25% along with our pal Michael Gove's extra 4% on house builders = 29% = £4.8m tax = net profit after tax of £11.7m.
Divided by 251m shares in issue = 4.5p EPS.
I've just put this out on the blog to invite senior moment spotters to pick me up on any errors, and am doing the same here for any number-crunching, accountancy-minded readers who may be minded to do so here...?
With the negative book value weighting of minus 30% that I have in for Crest against Bellway, and with today's price drop, they still represent best perceived value in my view ~ though I currently have a self-imposed limit of their being not more than 20% of my total holdings.
I'd welcome you or anyone else coming back on this to confirm or correct my numbers...
Strictly
“I think the point I was trying to make is that looking at the revenue and profit doubling over the last 3-4 years…”
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Well, Vistry have been on a spending spree over the past year or two so, yes, their revenue has more than doubled…
But I’m old fashioned enough to consider that it’s the bottom line that matters to shareholders, not the top line, as it’s easy enough to spend capital buying businesses but what really matters is whether or not that translates into pro rata real extra profits…
And staying with my preferred metric ~ that clearly you’re not a fan of ~ and working from the tangible net equity of the company each balance sheet divided by the number of shares declared to be in issue at each balance sheet date in order to arrive at the tangible book value per share at each accounts period, I end up with:
2020: BVPS 676p less b/f BVPS 840.7p + div paid 41p = reality check loss per share of (123.2p)
2021: BVPS 751.2p less b/f BVPS 676p + div paid 60p = reality check EPS of 135.2p
2022: BVPS 572.9p less b/f BVPS 751.2p + div paid 63p = reality check loss (115.3p)
Total overall loss per share 2020 to 2022 = (103.3p).
Using the same methodology for the previous three years, 2017 to 2019, gives reality check EPS figures of 75.7p, 98.7p & 108.7p respectively.
That’s a total EPS for the three years of 283.1p.
Mind you ~ I am known to be prone to senior moments, and it’s always possible there’s an error or two in my calculations…?!
However, if your view is that profit has doubled for the most recent three years compared to the previous three years, which is starkly different to my view & which is that profits have not only dived but they’ve disappeared down the plughole, we are clearly using somewhat different metrics by which to form our respective understandings…
However, you have not said how exactly you come to your numbers…?
I think the bottom line to this discussion ~ and thanks for engaging with me on this, by the way ~ is that it takes two different views to make a market in any share at any time, whether they be close together or far apart…
And I reckon our respective views fall into the latter category…
I suppose, at the end of the day, maybe we’ll remember this discussion in a few years’ time and, if we’re still both in the land of the living (I don’t make assumptions about that these days..!) maybe we can revisit this in due course when we’ve seen how things have shaped up in the rear view mirror in due course…?
And I have to own that I only really lobbed a small piece of ordnance into Vistry this morning because the house builder share chat on LSE seems to have become a bit dull of late and I was looking to liven it up a bit…! :-)
Strictly
“Vistry is delivering for shareholders. That’s the bottom line.”
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TMS,
You’re not the first here on LSE to be unimpressed with my “rear view mirror” approach to investing, and I don’t imagine you’ll be the last either..?
However, it has served me well over more than twenty years of investing just in house builder shares & has provided me with a more than adequate living over that time.
My absolute basic metric is the progress of the tangible book value of a single share, adjusted for dividends.
This is 100% rear view mirror stuff…
Taking a comparison of Bellway vs Vistry, starting in 1997, Bellway had tangible BVPS of 183p vs 185p for Vistry (then Bovis).
Pretty much the same, in other words…
Scroll forward to 2022, Bellway’s tangible BVPS is now 2,727p vs Vistry’s 573p.
Add total divs paid, Bellway 1,282p & Vistry 702p, and less starting BVPS in each case, and you have tangible BVPS gain for Bellway of 3,826p vs Vistry 1,090p…
This reflects the difference in long term average ROE… in Bellway’s case, this is 16.4% and for Vistry this is 10.2%.
Now, if you are saying that Vistry has entered some brave new world in terms of how they operate from here then, who knows, you may well be right…?
However, Telford Homes, in which I was an investor at the time, headed off down a similar road, implying that the world was their lobster with a capital-lite future ~ except it didn’t quite pan out like that in practice…
But if we’re looking at what Vistry have done for the past three years insofar as published year end accounts go, by my reckoning, and tracking tangible BVPS as above, they lost 103.3p tangible BVPS for the three years as a whole, while also paying out 164p in dividend.
The upshot of these combined was to take their tangible BVPS down from 840.2p to 572.9p.
Whatever their prospects may, or may not, be from here ~ and if you’re an intended long term holder of their shares then obviously you’re going to be optimistic about this ~ I consider myself to be rather wussy in these things and I really don’t have the cojones to be a Vistry investor.
Strictly
"Is share buy back good or bad? And how does it work?"
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Rad,
If this becomes a topic that gains some traction here, I would say that you would likely see a range of viewpoints expressed, following Clint Eastwood’s maxim…
But I guess it depends on whether you happen to think the share is fairly, over or underpriced…?
At a PBV of 1.3, it is currently costing 130p for every 100p of Vistry’s book value bought whereas 100p of book value could be currently purchased for 63p if it were Crest Nicholson, i.e. at less than half the cost…
And while Crest have form for being flaky with their prognostications and are currently far from best in show performance-wise ~ hence being cheap ~ they have still roughly doubled their tangible book value per share over the past ten years as compared to Vistry’s dismal 1% progress over the same period..
I guess that Vistry’s share price is up where it is because investing folk are buying into the story and the sale pitch ~ and are therefore focused on the foggy future rather than minding the murky past…?
Otherwise known as the triumph of hope over experience, I would say..?
I may well be wrong, but this seems to be a popcorn job for the medium term..?
Strictly
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? "
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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......"
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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."
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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?"
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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,"
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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"
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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."
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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