Member Info for strictlybricks

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

MarquessR

Yes, and of course the extent to which Redrow can buy back their own shares and cancel them below book value ~ and by my reckoning they currently sell at 0.94 PBV, so are just under ~ means they not only marginally improve EPS & ROE, ceteris paribus (and, of course, these improvements are only marginal, so I don't intend to get too carried away here :-) ), they also improve PBV.

Taken to its logical extent, in theory, Redrow could continually liquidate assets and end up with a single share in issue...

Somehow, though, I think the share price is likely to shift some considerable time before they reached that point...!

The painful thing to watch, elsewhere in the market, is when a company continually buys back its own shares to improve EPS at a big multiple of PBV...

Next comes to mind here....

Okay, that might move the earnings up a bit, but it haemorrhages share holder value in the process...

On a milder level, the same effect is had by Persimmon, who pay out an impressive dividend yield, but at a PBV of mostly over 3.0 in recent years, this is painful for long term value and overall shareholder returns...

Which is why, despite their sector leading return on equity ~ which really is quite awesome ~ I don't hold any Persimmon shares.

But, in the meantime, while share prices are this low ~ go for it Redrow...!!

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

2227,

I subscribe to the Telegraph and there seems to have been a real flurry of excitable & speculative articles about future house prices lately....

Generally, readers' comments below the articles often seem more sensible and I pay the subscription as much for these as for the articles themselves ~ the investing articles are often particularly naff & seemingly poorly informed of themselves.

A much more useful link, IMO, is the Nationwide's website....

After all, these folk do tend to issue a mortgage or two, and track progress through their numbers, rather than being just some bored hack doing a quick bit of research on a wet afternoon.

https://www.nationwidehousepriceindex.co.uk/resources/f/uk-and-regional-affordability-indicators

Per the Nationwide, since 1952, amidst all the thousands of percent of house price increases, there have been just two periods of house price falls.

1990, with around a 20% fall, and 2008, again around a 20% fall....

At both of those points, first time buyer mortgage payments as a percentage of income rose to 46%, whereas right now they are toddling along at 31.9%, which is around average.... again, all this is from the Nationwide's website...

And we've recently had Jason Honeyman's trading update on behalf of Bellway, and I discerned nothing except good news ~ positive prospects for business as usual and with the intention to increase dividend payout from 2024 from one third of earnings up to two fifths of earnings.

And Bellway have been the most consistent housebuilder of all ~ the "Ghost Dog" of the sector ~ and Mr Honeyman has been around the house building game since he left school at 16.

And Bellway have only previously paid one third of earnings out as dividend for the past forty years.

And now they're intending upping it.

So, this seems like a Harry Callahan moment to me...?

For anyone looking to bet against Bellway from here, I reckon they need to ask themselves:

"Do I feel lucky?"

"Well, do you, punk?"

Strictly

Oi Oi,

Pleased on your behalf to hear you're out....

Inland seems to have become the Vicky Pollard of the house building sector....?

That used to be Galliford's mantle :-)

Strictly

"I can't fathom why we haven't seemed to track other housebuilders, seemed to languish out of sync."
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Damo, I don't know how far back you are taking your comparison, but for this year to date ~ for the companies which I track at least ~ share price performances are:

Barratt minus 31%
Bovis minus 20%
Bellway minus 27%
Crest minus 27%
Persimmon minus 25%
Redrow minus 26%
Taylor Wimps minus 25%

So, aside from Bovis, Wimps are joint best (or, perhaps more accurately, least worse) in show.

So, maybe with regards to this at least, your concern is greater than is perhaps called for…?

And in the meantime, we just have to wait to see how successful Gove has been in trying to morph into Tony Soprano in his attempt to shake down the entire house building sector...?

Strictly

Oi Oi,

You may have already picked up on this if you still read the SB blog, but I sold down all my remaining Inland shares through the middle of February.

Even though I'd already sold most of my holding in November, it still took more than a week to sell the remainder, so this share has now, based on my recent experience, become significantly even more illiquid than it was before, and that's never been its long suit anyway.

The illiquidity is, of itself, a big deal for me as I tend to get investing claustrophobia if I feel I'm stuck in a share, but there's also that they've hardly covered themselves in glory these past five years in terms of profitability, and then from here the scribblers only have them in for an ROE of around 8% or so for the next three years as best as I can make out (I haven't acquired any clean projections for EPS for them).

And I’m not into holding shares for a forecast single digit ROE let alone what may or may not be actually achieved after all the “Yeah, but, yeah, buts…”

And then there's the balance sheet overall liabilities percentage which is 81% for Inland against Redrow 54% and Bellway 41% and Redrow are on a likely average ROE for the next three years of around 17% or so.

So, I decided to clear out of Inland, take the hit, and move fully back to the old faithfuls, and consequently I'm currently now around 70% in Redrow and 30% in Bellway.

And this was before Vlad put his helmet on and blew the whistle and, all in all, I'm happy being fully invested other than holding appropriate cash reserves, and I'm not looking to call the market at all in respect of what's happening in Ukraine because how can you possibly do that when, on the one hand, nuclear World War 3 might break out or, on the other, a sudden comprehensive peace deal may be signed...?

In the world of house builders' shares over the past forty years, buying shares in the sensible ~ i.e. consistent & relatively ungeared ~ housebuilders at prices that are sub-book value, which is where we are right now, has always proved to be a good thing.

Providing, of course, that one has also invested in a reliable pair of incontinence underpants for times like this...

Oi Oi, do feel welcome to get in touch by email or via the blog if you’re interested in discussing all this further.

Strictly

Schwee...

And we're all waiting on Mr Gove, I suspect, to see how he fares in trying to morph into Tony Soprano in his attempt to shake down the entire sector...?

Strictly

Bigunz, if you can put aside any notion of trying to predict short term price movement and instead just pursue best perceived value then, in Bellway, you're looking at a company that has averaged around a 16% ROE for the past forty years yet which, despite the market at large being in the middle of a raging tech share price bubble right now, is currently available for pretty much book value.

What's not to like...?

It is currently, and by a substantial margin, my largest holding.

Strictly

Basically, a Ronseal job today ~ they did what it said on the tin ~ with reality check EPS of 31.7p ahead of declared EPS of 27.6p but pretty much in line with what the scribblers had them down for which was 30p EPS.

It does mean that Crest continues to be a dull performer, though, with ROE of 10.1% which is significantly behind that of Bellway, at 13.3%, and well behind that of Redrow, at 16.6%.

So, while they have closed the gap, they have continued the trend of the past few years of underperforming their two cousins....

And this is also the case with strength of balance sheet...

Liabilities as a percentage of net equity, adjusted for intangibles, have consistently been higher for Crest than for the other two, and most recent figures now give 81% against BWY 42% and RDW 52%.

So, definitely no cigar, and this is reflected currently in the PBV gap between the companies, with Crest on 1.09 as of close of play last night, Bellway on 1.22, and Redrow on 1.27.

However, IMO, the lower PBV for Crest is not sufficient to fully reflect the current yawning gap in relative performances, and Crest is not a buy for me yet...

I reckon I'd be looking for around a 25% relative price drop for Crest against the others for them to be in the buying zone for me.

Strictly

Demos,

"Strictly. Maybe I’ll call you Lieutenant Columbo"

Well, you may be onto something there....?

As it happens, I DO have a penchant for hard boiled eggs ~ albeit via egg mayo sandwiches....

"My start point is that HBs will do well in 2022. Brokers’ SP forecasts are suggesting a rise of 25 to 30%"

As we've discussed elsewhere, I take no account of scribbler-predicted short and medium term share price rises whatsoever and focus solely on perceived best value.

So that would perhaps be another difference in investing strategy between us apart from my attention to the rear view mirror and your preference for windscreens...

However, we do seem to be in agreement about who we think the top boys are ~ Redrow and Bellway.

If we're talking book value weightings, though, next up for me are Barratt and Persimmon ~ on a par with each other, just way too expensive to buy, currently, for me ~ and, when it comes to Crest, it's their relatively low PBV that puts them next in the frame for me rather than their recent underlying performance....

And then there are our pals Inland, of course ~ though I’m waiting on the full time whistle next month before taking a firmer view.

And has Battersea found its pedigree documentation...?

You seem to think so, and maybe they have...?

But, for me, why risk it right now or, indeed, in the next year or two, unless their PBV drops right down to meet the (admittedly rather jaundiced) book value weighting I have for them right now somewhere in the middle...

Right now, that would have to be a seriously low PBV for me.

And Mr Market…?

Over any short term period, I’m quite happy to let him go and do one ~ he generally gets there from time to time, and that’s all you need if it’s about moving cash in and out as it's surely the only time that it matters other than the risk of takeovers if prices remain too low.

And finally, if we do manage to sort an investor session here early next year ~ it is something I'm looking at ~ no doubt this is a conversation to be continued eyeball to eyeball...? :-)

Strictly

PS

"And, yes, I think that CRST is in the same situation – but not yet recognised by the market. VTY is up 24% this year, CRST only 7%. "

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Demos,

I hadn't properly taken this line from your comment on board....?

What I'd meant was the opposite of what I think you're implying...?

Which is that, if the scribblers are right about Crest's ROE (and I think I've got to go with their call when it comes to Crest as I have no idea about their near term profitability whereas Bellway & Redrow, based on the past few years outside of covid, have been more straight forward to call, based on humble experience ~ that is, being a scruffy amateur out here in the boondocks on Dartmoor rather than some sharp-suited professional in the city...?) then, IMO, Crest's share price, relatively, has further to fall to get to par in terms of relative perceived value.

And I think you're saying that Crest's share price, relatively, needs to rise...?

Which, IMO, takes it further away from equal perceived value, not closer...

But, of course, Mr Market may well have other ideas...

And I have zero ability to read his mind...!

I think that taking the time to write all this guff may be a symptom of it being a dull time in the market, and seriously foggy outside....? :-)

Strictly

"Strictly, you ring my bell (with some persistence) so I have to answer the door ….."
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Demos,

You have me sussed.... :-)

Starting with some numbers, just for a change...

Since 1997, Battersea have averaged an ROE of 11.9% against Bellway's 17.4% ~ a huge difference, in other words...

This has turned Batterseas's 1997 BVPS of 185p into 2019's BVPS of 855p with a bonus of total divs paid of 509p compared to Bellway having converted 185p BVPS (handily virtually the same starting value) into 2,373p BVPS in 2019 plus paid out 975p in total divs.

Since 2019, Battersea have hardly covered themselves in glory, losing 180p per share of tangible BVPS in 2020, and, as a bonus to that, also shedding safety by taking the total balance sheet liabilities from 41% in 2019 to 98% in 2020.

So, they went from Tim Nice-but-Dim to Tim Not-so-Nice-but-Dim in one fell swoop.

My take on this is that they could have played with the current assets any which way, and almost certainly with a following wind given the big change during the year, to come straight out of the trap, seemingly at full pelt, since acquiring the Galliford bit...

After all, writing off 180p of tangible asset per share surely allows for some cheeky kitchen-sinking...?

But the great thing about only taking balance sheet values seriously, and ignoring those great works of fiction that profit & loss accounts often seem to be, is that once something ends up on the BS it can't be messed with without consequence...

So, let's say a company ~ no particular one in mind here, of course ~ has massaged the balance sheet so as to show a favourable benefit of, let's say, 5% improvement on the ROE then there are two particular consequences to this.

Firstly, if they want to keep the facade of a higher ROE ongoing, they've necessarily got to keep adding to the distortion of the reported numbers every year.

And, secondly if, let's say, new management comes in and wants to lose the distortion, they've got to show a year that's 5% worse than it really was to be able to get there...

Or more, if this has been running for more than a year....

And I appreciate that not everyone would agree with this ~ for example, those who might prefer to use ROCE rather than ROE ~ but BVPS, reality check EPS adjusted for dividends, and ROE, all join together like a jigsaw puzzle, over any amount of years, barring an intervening rights issue.

And taking all the above into account, I think that I'm likely to be following Buffett's relevant aphorism here (and he seems to have one of those for every occasion) about waiting for the perfect pitch...

And, in Battersea's case, I reckon it's best to be like a man from Missouri..?

Strictly

PPS

Demos,

In checking the numbers for my previous comment, it occurred to me that there may currently be a parallel for Crest with Battersea, aka Bovis...?

Crest started off like Syd Barrett, in that it reached for the secret too soon with some early sector outperformance in 2015, having only been delivered back to the market a couple of years previously from intensive care, and Mr Market over-responded accordingly.

And now we have Battersea, with decades of underperformance in its CV, having just bought the house building arm of the other woofer of the sector, Galliford.

And now they've had a good half year, at last, and the scribblers have them down for a decent full time whistle result, and once again, Mr Market is off his meds and has put them on a PBV of 1.65 against Redrow's 1.24.

I reckon it'll take a braver man than me to venture into that one right now, though if they're still sustaining it in a few years’ time, then who knows...?

I'm not holding my breath on that, though, and am happy to watch from the side-lines in the meantime...

Strictly

"Strictly, why miss out RDW in the comparison?" PS
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Demos,

I omitted to include Crest in my previous comments ~ a company that is significant to both of us, is it not, in comparison to the others...?

As we know, Crest have been a great Sid & Doris share, and combine that with their disappointing underlying performance in recent times, since pre-covid too, and also that they were a share highly favoured by the market back in 2013, with a PBV at the time above even that of Persimmon, being 1.60 as against 1.41 respectively....

It seems Mr Market is now getting his thinking straight on Crest now, though (still not fully there yet, relatively, IMO, though I'm aware that Cyberduck doesn't, and you possibly don't, agree with that..?) with the upshot that, as of the weekend, Crest's PBV is currently only 1.04, which represents a PBV fall of 35% since 2013.

In this respect, it is in a class of its own ~ even against our pals Inland who have only dropped PBV by 13% over that time.

The upshot is that their market performance, including divs reinvested on the day, has only been an 88% gain since the start of 2013, barely one fifth of Redrow's 402%.

Who would want to have been a long term holder of Crest over the past nine years, eh, with an overall average annual compounding return of just over 7% compared to what's been had elsewhere within the sector..?

Strictly

"Strictly, why miss out RDW in the comparison?"
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Demos, yes, I could have included Redrow, but I've got that in for the blog post I'm currently working on along with Persimmon and our pal Inland, so you should have that shortly...

But here I didn't want to distract from the main point I was making which was to say that Taylor Wimps are in amongst the chasers (though not the leaders) and on that basis is Peter Redfern really entitled to such opprobrium...?

If you look at relative share price performance, though, Taylor Wimps have out-performed both Bellway and Redrow if you're comparing starting PBV at beginning 2013 to PBV now.

Bellway's has increased by 6% over that time, Redrow's has increased by 16%, and Taylor Wimps has increased by 24%.

So I don't agree with commenters here that they have disappointed in their share price performance, unless they are also suggesting that Bellway and Redrow have disappointed more..?

The huge outperformances in this regard have been Barratt, Battersea and Persimmon....

I'm still waiting for Mr Market to catch up with those boys and feel their collars....!

When it comes to underlying performance shining through eventually, as young Macaulay Culkin called out to those hapless burglars in the film, Home Alone

"You can run but you just can't hide..!"

Strictly

"You have to give Redfern some credit"
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PCla, to put some numbers on it, which is generally a useful thing to do I find, and as I've very recently updated my figures for this particular marker (and providing there are no schoolboy errors or, more likely in my case, senior moments involved in my calculations…? ?? )

So I now have some comparison figures for average annual BVPS growth added to dividend yield from 2013 to 2021 (so, for some of these, 2021 is estimated as we have had full time whistles yet...).

I've given the companies in the same ball park as Taylor Wimps, plus Bellway ~ as this is my benchmark share.

These are as follows:

Bellway 15.6%
Barratt 12.9%
Taylor Wimps 12.6%
Crest 12.2%

And, firmly in the doghouse,
Bovis 7.5%

Now, while I would say that the above figures suggest no cigar for Mr Redfern, at the same time, it’s hardly been a comparative disaster, surely...?

Strictly

Hi All
I haven’t posted for a while on here, but answering the question over the land price per plot...
................................

Thanks for that, Ben.

Strictly

"Also, as pointed out on this thread, PSN have by far the best operating margin of the major builders. This is because their strategy is to carry a little land as possible, and purchase it as required on a just in time basis. They operate an asset light strategy and target the low cost first time buyer segment. The market perceives this as as superior. "
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Wigan (and anyone else who may have some information to provide for this..?),

I've just been having a look at this in respect of Persimmon...

As compared to Bellway, based on (In Persimmon's case, 2019 accounts but 2021 for Bellway) they both carry about six years' stock of building plots.

However, the big difference, which I admit surprised me as I don't follow Persimmon closely given that I'm a fair way from being interested in holding their shares, is that Persimmon's average plot cost seems to be £31k against Bellway's £46k.

That's quite a difference, 32% less than Bellway's and, of itself, would seem to go a long way in explaining Persimmon's significantly superior return on equity..?

However, having made a couple of different Google searches, I couldn't really find out the underlying reason, though I did come up with this article which asserts that Persimmon essentially nicked 30% of the agreed land plot on a particular house sale...

https://www.thisismoney.co.uk/money/experts/article-6842627/TONY-HETHERINGTON-Persimmon-plot-gives-greed-bad-name.html

However, even if that particular assertion of sharp practice was correct, I'm not imagining that even Persimmon have the cojones to be doing that as standard operating procedure, so I'm still no further forward in understanding the reason for the big cost disparity in the costs per land plot between Persimmon and Bellway...?

If any readers here ~ and I'm aware that there are several working in the trade who comment here from time to time ~ can shed any light on this it would be much appreciated....

A potential concern for Persimmon shareholders must surely be whether Persimmon's plot costs are likely to revert to the industry average over time...?

If so, their margins and return on equity are likely to follow....?

And, if that occurs, one could imagine that the price to book value ~ currently more than twice that of Bellway and Redrow's ~ would also likely drift down in due course.

And, currently being at a PBV of nearly 2.7, that's potentially a long way to fall, relatively (and it's price changes for builders' share relative to each other that interest me, as I typically remain fully invested and, as the name implies, solely in this sector).

Strictly

"I do think that some of the larger house builders were dragged into over paying their divis, post 2009, when they should have been acquiring cheap land, as Bellway were doing, by PSN. "

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Vlad,

Yes, clearly the "Me too" movement didn't just apply to sexual harassment...! :-)

Strictly