Member Info for strictlybricks

"An interesting trend I was told about is that house builders invariably do well in Q1 of the year and so I will be targeting a re-evaluation by me around Easter. Have you noticed this trend?"

Bindog,

However you cut that one, it's trying to predict short term price movements - and I absolutely don't go there, though I might occasionally position myself to some extent for trading figures coming out, but it still has to be based on perceived best value at the time.

You haven't mentioned your overall holdings....?

Earlier this year, I met a couple out walking the South Hams coast path, as you do, and they both happened to be in the investment game in different ways.... one was a chartered financial analyst, which sounds pretty serious, but they both metaphorically took a step back made the sign of the cross at me, like I was a vampire, when I told them I had the grand sum of three holdings at the time, that that was a pretty good spread by my standards, and that they were all in the same sector.

They couldn't argue with my long term results though.... we've kept in touch, and I think the one who's the financial analyst was starting to get it.

My point is, in my usual long winded way of getting there, that you can listen to what orthodoxy says about spread, or you could listen to what Warren Buffett has to say about it, which is rather different....

I mean, you can choose to go wide, or you can choose to go deep, and try to keep opening further layers of the same onion.

That's what I've been trying to do for the past two decades and, so far, it's working for me.

If you decide to go deep, fire up the excel and analyse the numbers over a long period of time to within an inch of their life....

Bit by bit, you're likely to get there...

And maybe read "The Zulu Principle" which, basically, is urging readers to do just that...

Do feel free to come back at me on this, though, and I imagine Vlad might also wade into this when he sees an opening...?

Strictly

Bindog,

Since buying into the house builder sector in 2003, I've only moved out to cash once - which was this year in the face of oncoming covid, in the spring.

I didn't sell up fully, but now fully back in and, as of Friday's close of play, I'm up 8.3% on the year rather than down 28.8% as is the case for Bellway.

What I do do is trade frequently between different house builder shares, always pursuing best perceived value... sometimes I'll take a 5% gap, sometimes even less if I want to balance up holdings and see half a chance to do so.

My aim is to beat Bellway by an average of 10% a year... by coincidence, this was also Buffett's annual target for beating the S&P in his early days, which he exceeded... no chance now, of course, his fund is way too big.

I've kept pretty accurate records for this since the start of 2013 and, up to the start of 2020, I was around 6% a year ahead of Bellway, so not reaching my target.

Being fortunate enough to have spotted the oncoming iceberg this year ~ and I'm not expecting to ever be able to do that again ~ has catapulted my relative performance forward, and I'm now beating Bellway by 12% a year over the past eight years, but I would anticipate that average slipping back over future years but hopefully not below 10%.

I have a weighting system against book value per share to make it simple to see the perceived value gaps (don't ignore the word "perceived" as it's important!) and, right now, the three big boys that are on my radar, Bellway, Redrow and Crest, are all within 3% of each other in terms of my assessed value.

Beating them, by some margin right now, is Inland Homes - but they are a relative tiddler, and so come with relative liquidity issues unless you're only investing a few bob....

Nothing I have looked into comes close to house builder shares for me - I have eleven criteria to meet and everything else easily gets F for fail, such as the two non-house builders Vlad put up, though he also seems to watch the ball, not Ronaldo's legs.

I tend to invest mainly looking into the rear view mirror... if the management's rubbish, it's likely to show in due course.

I have no view on short or medium term prices - what matters to me is the perceived value gap between different house builders, they're nearly always too cheap compared to cash IMO.

This is now the pee on your bonfire section...

If you scroll back through my past comments here far enough ~ click on my name ~ you'll no doubt see I've been uncomplimentary about Bovis, or Vistry as they are known as these days - in our circle they are referred to as Battersea Dogs Home.

They're likely to finish the year on about 655p BVPS net of intangibles, that would give them an average ROE for the past ten years of 5.6% compared to Bellway's 15.8%

Yet their PBV is way above Bellway's, at 1.32 vs Bellway 1.10.

Vlad, are you reading this?

Strictly

John,

The 50p div is about a third of earnings, in line with their 37 year record...

So, for Bellway, I would say that that was a Ronseal job...

Strictly

Jake,

I started managing my own investments in 2000, however, I hadn't had my "epiphany" about house builder shares at the outset ~ I mean, realising what superior long term value they were against anything else available (that I'd looked at, anyway) to the likes of humble private investors like you and me ~ until 2003.

But, if I had understood what Bellway (or Ghost Dog, as it is affectionately known as in our investing circle, and is also our benchmark share...) was about and had just put my money into their shares and had also reinvested the dividends, every £1,000 would now be worth over £20,000.

Whereas, while I've done better than that from an initial slow start, I've had to really work at it, and make many, many trades between house builders shares instead of having been able to just sit there, scratching my bum, and watching progress unfold.

The thing is, it was there to see right from the start that Bellway only had to carry on doing for the next twenty years what they'd been successfully been doing for the previous twenty years.

Only, it took me several years to "get" it.

I appreciate that there have been plenty of shares in other sectors that have done as well or more so.... but it would have taken a better man than me, Gunga Din, then or now, to be able to see their potential.

And that old b.st.rd, Captain Hindsight, is never around when you need him, is he...?

So, I don't have a view about what the management at Bellway may or may not feel about the likes of us, I'm just happy that they seem to be carrying on as before...

Might be worth having a play with the numbers on a spreadsheet to see whether you concur with my comments about dividends... it's taken some drumming home within my own investing circle that minimal dividends being paid is a good thing not a bad thing providing the company concerned can do something useful with the retained earnings...

And don't know if you're a reader of Warren Buffett...?

Might also be worth seeing what he has to say about dividends..?

But I don't cease to be surprised about the degree to which over-paying (IMO) dividends seems to pull in the approval of investors.

Strictly

Vladamir
In the early 2000's, I undertook an analysis of all of the FTSE100.... back then the P/E for the index was around 15 or so, implying a return on investment of around 7.

However, this was based on "mythical" earnings rather than "reality check" earnings.

I found that reality check earnings just about covered dividends, so that was the actual return on investment.

And that implied the the FTSE100 was going nowhere.

And I rest my case on the fact that, in more than two decades, it ain't....

Gone anywhere, I mean...!

And that single, but profound, insight back then has saved me an absolute bl..dy fortune in preventing me from investing in all manner of big company cr.p.

I came to see that the FTSE100, with apologies to Kipling, is "A set of numbers presented by knaves to set a trap for fools".

The further insight from this was to not pay too much attention to overall company equity (and this is where it becomes relevant to your question) but to just look at the progress in value of a single share, adjusted for dividends paid.

Firstly I must bring in a caveat here that a rights issue would be a spanner in the works.... but that's it, and anyway, a rights issue, whereby a company is issuing shares at well below book because they're in the p..p, is surely a flashing red light of itself, a la Barratt andTaylor Wimps after the credit crunch..?

And I don't think one needs to over-complicate things (and here I may be opening up a discussion point as, by contrast, I may be over-simplifying things as I don't claim to be the fountain of all knowledge in this), I mean, where exactly any "evaporation" occurs doesn't really matter IMO.

If a company is buying it's own shares back at above book value, a la Next (big time in their case, they've pi..ed away 90% of retained earnings that way but the market doesn't seem to care..?), or if a company has had to top up their pension plan, that all comes under the category of c.ck up in my view, and all goes in the pot.... or down the plug hole..?

Don't know if you have the essential numbers for Bellway going right back....? You can start at 1983, follow the book value per share each year and line that up against declared EPS adjusted for dividends paid and it's pretty much an exact match...

How many companies could you say that about..?

So, the most important numbers for me for any company are the book value per share each year (net of intangibles, of course) and the dividends paid.

That's it... if those were the only two numbers available to me, I'd still be pretty happy to make my investment plans on those providing I can go back far enough through a couple of economic cycles, because then that would likely show up poorly managed borrowings which would be the other thing to be concerned about.

Essentially, it is as simple as that as a basis.

Let me know what you think, though..?

Strictly

Jake,

I had a look back at a few of your posts before writing this, and I can see that, as well as being a long term holder of Bellway shares, you have also had a concern over the level of dividends.

If you've read any of my posts here, you'd soon see that I only invest in house builders.

And Bellway is currently my largest holding - so our interests here are aligned!

I have a few points to make, that may or may not give some encouragement.

I have records on Bellway going back nearly four decades to 1983, and they have been the ONLY house builder of those that I track to have paid a dividend every year including going through the credit crunch.

They have also been the most consistent in their dividend policy.... give or take, they pay out around a third of earnings in dividends. From 1983 to 2020, their total EPS are 3,295p and their total dividend payments are 1,004p.

Of the big boys, they have been the only house builder as far as I pay attention to that have not got caught up in the "me too" malarkey of overpaying on dividend to entice the seemingly large numbers of share holders in various companies who place a big significance on this without, it seems, necessarily looking past that into the important numbers.

At lower rate tax, given that the gap between dividend tax and capital gains tax is now only 2.5% and that there's a substantial capital gains tax allowance to blend in, and given that the higher rate is 32.5% on dividends but currently only 20% on capital gains, overall one would have to say that the tax on capital gains is more favourable than on dividends outside of an ISA or SIPP.

And, apart from the above, outside of any company's shares selling at less than book value ~ which would generally indicate some sort of crisis during which the company may well not be paying dividends anyway ~ it makes more financial sense to cash in shares than for a company to be paying a dividend anyway.

So I would prefer that Bellway paid no dividend.

For share holders in a company like Persimmon, that has been selling for around 3 x book or more, it's a bl..dy nightmare, as, providing they could have otherwise retained that money and grown the business more rapidly and at the same level of profitability, and providing they could have retained their market esteem to the extent that their shares still sold at 3 x book, their shareholders would have been three times better off on the amount they'd received as dividends.

That's one of several reasons why I haven't held Persimmon shares for some time.

Of course, no doubt many share holders in Persimmon wouldn't see things this way.... but then they may not have thought through the numbers?

And, finally, I would rest my case on the fact that Warren Buffett's Berkshire Hathaway has never paid a dividend.

And Buffett's hardly renowned for being an investing slouch, is he..?

Strictly

"Strictly....any comments on todays RNS?"
..............................

Terrace, I'm guessing you've seen my comment on the blog today anyway, but IMO essentially it's a similar story all round for the players in the sector that I'm interested in - that is, BWY, RDW, CRST & INL and, to a lesser extent, BDEV & TW.

Give or take, they've all effectively been treading water for a half year of profits and, for that, plus quite possibly slimmer profits for the near future, they've taken varying levels of market punishment ~ from a 25% drop in price year to date for BDEV to a 45% drop for CRST, and that's after Crest's stonking performance this month to date which has encouraged me to start moving some across to INL.

Right now, with assessed BVPS for October, I've got BWY at just over book and RDW at just under book - which is why I'm not yet holding any BWY, though they are moving closer to the zone and, if today's market downer on BWY continues this week then, who knows?

I'm allowing for all the above companies dropping to around 10% ROE over the next year or two..... this may be over-cautious but, for me, it doesn't really matter if it's a sector wide margin of error - by which I mean I'm similarly out on all of them.

Given that I have a significant holding in CRST and a smaller, but still significant, holding in INL, and given that CRST's year end is in just ten days' time and INL's was just twenty days ago, I'm certainly looking forward to their next updates.

Particularly in the case of CRST as their second half is now all post covid shutdown and their consequent balance sheet hits taken ~ and hopefully they've kitchen-sinked their numbers now? ~ so we might get some sort of realistic sense of how profitable these companies currently are given that they are probably still hampered to some degree by covid work practices on site..? (I reckon some of the regulars on TW. share chat would have a far better idea on that than me as there are several building trades people now commenting there so they will now doubt have a perspective from the sharp end).

As for the sixty four dollar question, though - I mean: Is there another market price down wave to come..?

I have absolutely no idea, but if the above suggested outlined scenario is valid as a minimum ~ I mean, that the builders have taken the big one-off costs of covid and are now on for a bottom double digit return and growing profitability back from there, well, paying around book for the bigger boys and somewhat less for Crest and Inland doesn't seem unreasonable...

Does it..?

As ever, that old b.st.rd, Captain Hindsight, is never around when you need him..!

Strictly

"Relatively small, but an example of the additional resilience ( mentioned earlier ) provided by ongoing partnerships with social housing providers."

Raleigh, you're putting these comments out under the heading that I initiated, so I'm wondering if perhaps you are aiming them at me and are seeking a response...?

Taking driving a car as a metaphor for investing, my approach is to spend much of the time looking in the rear view mirror.... I appreciate that wouldn't be ideal if one was actually driving a car so the comparison only stands up so far....

The thing is, I've been in this game for twenty years and that approach has served me well, and now being well into my late sixties and (allegedly) somewhat set in my ways, it seems unlikely I'll change...?

But the thing about the rear view mirror approach is that you essentially only need three numbers...

The book value per share net of intangibles at the start of the year, the total equity net of good will at the end of the year, the number of shares in issue at the end of the year, and the amount of dividend per share actually paid during the year...

Okay, four numbers then...

From those, I can obtain the real, not mythical, earnings per share, and, from that, the real return on equity and the correct price to book value (which I update each month based on estimates and am usually within my target 2% error allowance when the numbers are issued - which is near enough for my purposes)

And that gives me what I want to know, going back decades for most of the big house builders. The amount of debt, or lack of it, is obviously an issue going forwards but, again, how successfully the company used leverage in the past shows in the actual return on equity achieved, and also I observe that companies, like people, can tend to have natures that, give or take, are likely to be fairly consistent.

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

Whereas, many investors put far less store on the past... and, of course, they may have great success with that... but it is very much a different approach - a different hand on the big ouija board that is the market, perhaps...?

And if Bovis really has changed, and if my metaphorical car I'm driving is also a time machine, then, all being well in due course, I'll be able to observe how they've done in the rear view mirror and make a value assessment accordingly...

And in the marketplace, all companies tend to have their moments in both the sun and the rain, and history suggests I can almost certainly bide my time for Bovis and, in the meantime, there are easier questions on the exam paper IMO.

Warren Buffett's perfect pitch, if you like...?

And if I'm wrong, and Bovis soars off into the sky from here and stays there, well, no one house builder has ever been the only game in town so far....

Strictly

Kernowlad,
"SB
What did you make of the Galliford Try update. Jam tomorrow but at least parts were encouraging. SP rallied but has since fallen back."

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

To be frank, I haven't looked at it.... if you're a Galliford fan, you probably won't want to hear this but I regard them based on track record as an even bigger nightmare than Bovis.... I did get into some chat, as I recall, on the GFRD share chat some time ago so you can probably scroll back on my old posts for chapter and verse if you like...

And now Galliford have offloaded their house building arm to Bovis, I'm guessing that makes them just engineering now so they're off my radar in any event....

Of much more interest to me are Barratt, Redrow, Bellway, Taylor Wimps and Crest...

After all the hoo ha this year, Barratt have made a return on equity of 8.6% and Redrow have made 7.0%.... not really any big difference there to shout about, is there...?

Haven't had Bellway's results yet but I've got them in for 9.3% ROE.... maybe it's a tad high given the others, maybe not, but it's based on an estimated EPS of 220p but that's still less than the scribblers' 242p.

And I've got Taylor Wimps in for a prospective 8.0%, so that seems in the likely general ball park....

And Crest are having an annus horribilis, and they're in for minus 1.6%. but the market has already hammered them for that.... probably too much IMO, hence it's currently my biggest holding.

But, anyway, firmly glued to the naughty step, is Bovis, on minus 22% and, yes, this is mostly writing off the goodwill acquired in buying Galliford's house building business, but it all goes in the pot as far as I'm concerned though obviously everyone is free to calculate value their own way.

Strictly

Kernowlad,

"...but my all time star is GGP "

I had to look up GGP to see what it was...?

Gold....hmmm, that's some way above my pay grade, I'm afraid - and, as my moniker implies, I stick to house builder shares...

All power to your elbow, though, if you know what you're doing with that, but house builder shares over the past twenty years have transformed my finances for the better, and I'm exceedingly grateful to providence that I discovered them...

Of course, opportunity is like beauty.... it's in the eye of the beholder.

Strictly

Kernowlad,

"Do you follow BKG (my biggest house builder) and if so where do you rate them on your scale?"

No, BKG is not on my list I'm afraid... mostly for the following reasons...

Pre-credit crunch, Tony Pidgeley was heading for one of those super-sized directors' bonus malarkeys, a la Persimmon (who, I reckon, copied him), and I wasn't impressed with that - even if it was headed off at the pass by events, the intention was still there... and obviously TP is no longer with Berkeley, or with anyone else come to that, but maybe his spirit lives on there and, being an investing wuss, I don't want to chance it...

And then there's all the share buy backs in the past, and I'm a simple soul who wants to be able to accurately track book value per share movement, because that's where it all begins and ends for me and most other stuff that emanates from company reports tends to be varying shades of fluff and fiction, IMO....

And now we've got another big added unknown.... London.... that's where BKG are.... and it might be originally my home town, but I haven't got a clue what might happen to house prices there and it just may be that it's been far too good for far too long and that there's a big reckoning to come....?

Stick with the easier questions on the exam paper, I reckon... like I say, I'm an investing wuss...

So, I follow Bellway, Redrow, Crest and Inland closely in that I'm updating each of their book values per share, to my best estimate, at the end of each month and at each ex div date, and I'm constantly tweaking that as events, and updates (and whim) unfold.

Less closely, I also follow Barratt, Persimmon, Bovis and Taylor Wimps - but none of those is anywhere near being in the value zone for me and I'd likely only up my tracking of them if they start to get close - I have held shares in all of them at different times in the past..... and even in Galliford (I hesitate to own up to that, but fortunately I'd got out of them in good time by 2013).

As I've mentioned, my benchmark is Bellway.... and that works two ways.... firstly, to mark other house builder shares against, and secondly, to mark my own performance against them.... since I've been doing that seriously, from the start of 2013, my target was to be beating them by an average of 10% a year, so that's a tough target...

I was managing an average of 6% a year until 2020 and the arrival of covid.... I got lucky, and for the first time in twenty years I moved a substantial portion of investment funds into Index linked Gilts, which I regard as plan B in case the smelly stuff really does hit the twirly thing.

The upshot is that my average improvement against Bellway is now about 10%, but against that, I've now got less skin in the game so a serious Builder share price bounce would knock that performance back again....

But, as things stand, I ain't complaining..!

Strictly

Raleigh,

1) "Why bother about Crest Nicholson on here. SB anticipated a 'nightmare' with Vistry on the Galliford Try purchase - not the case at all."

2) "So which Housebuilders so will do best over the next say, 6 months, or any period you like?"

To take your two points, the first of which crossed with my previous one while typing it and I have probably already covered it to some degree there....

Vistry's results were every bit the nightmare I'd imagined, the scribblers had them in for 60p EPS for the full time result and I had them in at a precautionary minus (200p), i.e. a loss...

Okay, that was a precautionary figure, but not by much as it is turning out.... my new estimate is minus (185p) based on the figures just released. Most of this, of course, is writing off all the intangible asset, aka fresh air, that was generated on the balance sheet through the purchase of Galliford's house building arm...

I am a seeker of value not a predictor of price. If you look at the graph I referenced previously, twenty year comparative between Bellway and Bovis, the former has a price gain of around 700% percent and the latter only 100%, yet they both sit at the same PBV so, priced more rationally, the gap would surely be even bigger given that Bellway's performance implies it's worth a higher rating than Bovis...

By contrast, Persimmon's PBV is around three times that of Bellway based only on a few years of relative out-performance.

I'm happy to rest my case on that.

Re your second point, it might only be a one liner, but would probably be a rather mammoth task to answer properly....

However, my previous point probably assists..

I have no idea about the next six months - after all, the market has had more than twenty years to get Bovis right and it still hasn't done so!

The whole point is that I'm seeking value and that can be very different to price in the short, and sometimes medium, term.

You can look to Warren Buffett to validate that if, as I do, you have respect for what he has achieved and the things that he says about investing... I certainly learned a lot from him when I started.

For example, one of his "If you don't feel comfortable owning a stock for ten years you shouldn't own it for ten minutes"

Strictly

fatprofits

"I'm guessing you are less hopeful on CREST, than some of your
Previous posts?."

No, quite the opposite.... Crest has had two duff years (including current year, and we're seeing that it's not alone in that) prior to that its profitability was towards the top end of the sector for the previous six years.

They also got into bovver before the credit crunch, by that seemed to have been entirely due to a Scottish entrepreneur, Tom Hunter, buying the company with a modest down payment then loading it up with debt, a la Debenhams, immediately before the credit crunch.... he lost his shirt and the banks took over the company... bit like renting a rowing boat just above Niagara then going with the flow...

Whereas, Bovis seems to be having a duff life... their only bright spot was that they had low borrowings going into the credit crunch so didn't need an investor-value-destroying rights issue like, big time, Barratt and Taylor Wimps and, later, in a smaller way, Redrow, when the king returned to put things right there...

I give book value weightings to companies against Bellway, which I use as a benchmark as it's been so steady, comparatively, over the nearly forty years I have records for.

Crest gets a weighting, in my rating system, of minus twenty percent....

There are one or two folks in my circle who would penalise Crest more heavily, but there you go - we're all over eighteen and old enough to fight & die for our country.

By comparison, Bovis is in a class of its own with a minus fifty percent... again, others might argue with that, but then, again, we're all investing our own money so are entitled to come to our own views.

The point is, even with that weighting as a handicap, Crest is still yards ahead of the other house builders IMO in terms of investor value as its price to book is so low even with being penalised by the weighting - and that's after having already taken a self-imposed hit on their land bank values as at the half time whistle.

At the last reckoning, they were also the ONLY house builder, of those I monitor, whose balance sheet passes the acid test ratio that accountants use as a measure of solvency and risk.... and that probably surprised me as much as anyone once I'd thought to check that particular ratio, but there you go!

Anyway, the upshot is that Crest is currently by far my biggest holding.....

Everything has its value, even Bovis... at the right price, it could be a buy for me.... but, relative to the others, probably not this side of 300p.

After all, IMO, the market's been getting Bovis's relative price wrong for more than twenty years (and if you think I'm overstating that, make yourself a comparison graph, on FT.com, of Bellway and Bovis since the start of the century), so why would it change the habit of a lifetime..?

Strictly

Raleigh,

"I thought it was JFK. Never mind."

Yes, you are right, the first bit was JFK...

Buffett just added the second phrase, I imagine as a reality check for over-exuberant investors... and, let's face it, there are a few of those around from time to time...

Strictly

Raleigh

"A rising tide lifts all boats."

As we seem to be having a Buffett themed morning, the part he added to the above was:

"...but only when the tide goes out do you discover whose been swimming naked"

And I think that's probably more our concern here, as it doesn't seem much like a rising tide at the moment....!

Strictly

Raleigh

"One can pick over all of these builders at the moment, with guidance from the past, and still finish up in the same place when trying to forecast what lies ahead."

Well, events may prove you correct, who knows for sure, but twenty years in this game has shown me that it does pay to take a view and, after all, that's surely why everyone comes here, reads, and makes comments...?

If I was presented with two lines on a graph and each was heading steadily in different directions and I had to decide where the next plot for each would be, I'd no doubt continue the trends.

And the market does take a view... it offers a wide range of price to book values on house builders' shares, from 2.70 for Persimmon down to 0.62 for Crest, so it clearly thinks that Persimmon will do rather better than Crest with every £1 of land you entrust it with...

As it happens, Bovis and Bellway are currently on exactly the same PBV of 0.91, so the market places equal trust if one is using price to book value as a measuring stick - which, of course, you may well not do?

To reshape some of what I wrote yesterday, and if we imagine that everything changes hands at book value, then the 183p worth of Bellway (a single share) bought at the start of their 1998 year would have delivered a further 2,190p of book value plus 975p in dividends, being 3,165p in all.

Whereas, for the 185p worth of Bovis bought at the start of their same year, you would have received a further 670p in book value and 509p in dividend, making 1,179p in total.

As I say, you may prove to be right, and Bovis may now race ahead and leave many other builders for dust....

And, as investors, we all necessarily have to take a view and clearly we take different ones...

But, apart from the numbers above, my view is that not only does Bellway's impressive performance stretch back much further than the period discussed, there's that not only has Bovis bought a business from Galliford Try ~ which is another company that has hardly covered itself in glory since the credit crunch ~ the new management also came from Galliford Try, so I wouldn't want to bet that they haven't also imported old bad habits while they were at it...?

As Warren Buffett has said "In the business world, the rear view mirror is always clearer than the windshield"

And I have no argument with Mr Buffett's long term performance, even if his most recent twenty years haven't been so great....

But anyway, I'm only trying to explain the sort of things that feed my perception of value and no doubt we each have different ways of doing so.... if your particular criteria work for you then I respect that and, if they don't, well, like me, you're probably always seeking to up your game further - rust never sleeps, and all that (and I'm speaking generally, rather than not referring to Neil Young there..).

Strictly

Kernowlad,

Well, I'll try not to pass any rude comment here on Galliford, then ~ or Vicky Pollard, as they are referred to in our blog elsewhere ~ but they have been a bit of a nightmare since an initial promising start coming out of the credit crunch.....

Their reality check earnings, the process for obtaining such having been described in an earlier comment here today, have been markedly different overall to their declared earnings per share, and this exacerbated their situation of already paying out too much in dividend (which is what Crest were guilty of coming up for covid, but I trust they'll sort that - especially as I've got a lot of Crest shares!) and, as you're probably well aware, they ended up having to do a rights issue right in the sweetest part of the cycle....

Now they're just an engineering business (I think?), maybe that'll change....? But I'm not holding my breath on that and anyway, as the moniker implies, I only invest in house builders and apart from that I much prefer to go for the easy questions on the exam paper....

By comparison, I've got numbers on Bellway ~ the company I referenced earlier today as it's my benchmark share ~ going right back to 1983.... I've only been managing my own stuff since 2000.... and since the start, 1983, taking an overall view, Bellway haven't put a foot wrong, IMO - over the past 37 years, they've achieved an average return on equity of 16.2%...

I use the word "awesome" sparingly, but it applies here....

Over that time, Bellway have turned a 51p BVPS into 2,372p and paid out a further 954p in dividends... if it sounds like a sales pitch, it's because I'm a big fan of them.... but DYOR, and all that... if you scroll back through old comments of mine here on LSE, and go back far enough, you'll no doubt see that I've written plenty about them here...

Good luck with Galliford, then.... if it's any help, perhaps the question to ask yourself is: "If I didn't already have Galliford, would I buy them at today's price?"

Because, if you wouldn't, any tax considerations aside, it surely leaves you pondering why you haven't sold them....?

Regardless of whether or not you're nursing a loss, the market doesn't give a monkey's, does it, and is highly unlikely to price Galliford kindly from here for you...

I speak as someone who has serious previous on this, so I'm not trying to lecture you on this... I got it very badly wrong with Barratt in the credit crunch.... so much so that I had to sell up and move house because of it.... down to Devon, as it happens, God's own land, and the next county to you by the sound of it...?

One of my three golden rules now is "Don't ever invest in companies that are heavily leveraged, no matter how promising they look...".

Amen to that, still...

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fatprofits

"Appreciate the view, are those metrics for VTY going to look markedly different next year,
Following the integration etc?."

I have no idea about that..... I just reckon the Ghost of Christmas past is a more reliable creature than the Ghost of Christmas future...

So I guess we'll find out about that when the future has become the past....?

In the meantime, if one goes with Warren Buffett's idea of waiting for the perfect pitch, personally I wouldn't want to pitch at Bovis right now ~ even if the price seemed good, which to me it doesn't ~ when what is there is largely hope, spiel and surmise...?

But, of course, DYOR and all that, and mine is just an opinion, albeit based on firmed up past numbers...

Strictly

There's the story and then there's the numbers and, of the two, I prefer to rely on the numbers....

I don't wish to pee on anyone's bonfire, and especially as I don't recall ever commenting here on the Bovis share chat before, so I suppose that makes me the cheeky new upstart, so I'll just put some numbers out instead.

But firstly, and perhaps controversially, I tend to ignore declared EPS figures, and instead use BVPS, adjusted for goodwill and intangibles, at start and finish of the accounting period, and adjusted for any dividends paid, in order to find out what the true earnings were based on increase in tangible value.

Because it's that which is going to count when it comes to calculating PBV, and I consider PBV to be a steadier measuring stick than year to year earnings given the seriously cyclical nature of house builder profitability based on any long term historical record...

Anyway, on that basis, balance sheet value of Bovis as at 30/6/20 being £2,118.831m less £736.305 intangibles (in various guises) gives net balance sheet of £1,382.526m divided by 217.828m shares in issue at the end of the period = 634.69p BVPS.

Calculated on the above basis, the brought forward BVPS as at 1/1/20 was 840.17p, so that gives a loss calculated as above of 205.48p.

If any of the above numbers are wrong, I'm happy to stand corrected - but the above no doubt seems way out of whack with the story otherwise presented...?

So, perhaps take a longer perspective to see if it seems valid.... I'll leave people to decide for themselves...

Including an estimated figure for 2020, and using the above process for EPS and book value each year, Bovis's average return on equity for the years 2013 to 2020 inclusive is 5.7%.

This compares to Bellway - the share I use as a benchmark - which has average ROE for the same period of 18.9%, i.e. more than three times as much as Bovis.

And this has been reflected in share price performance.... since 2013, with divs reinvested on the day received, Bovis has returned investors 45% overall whereas Bellway has returned 186%.

Go back even further, Bovis average return on equity 1998 to 2019 is 12.2% compared to Bellway's 17.4%....

The gap perhaps seems somewhat smaller, but compounding impacts more on the difference over the longer time scale....

In 1998, Bovis had a book value per share of 185p, pretty much the same as Bellway's at 183p in that year.

However, scroll forward to 2019, and Bovis's BVPS is then 855p compared to Bellway's 2,373p.

And yet, despite all the above, the two of them are currently selling at pretty much the same price to book value....!

Wonderful thing, the market...

Strictly

TMT,

I've just had a quick look at the latest balance sheets of the big boys (none of whom I follow that closely as they're currently all too expensive for me) ~ be they full year or half year as appropriate ~ and if you look through the cash position, just of itself I mean, to the liquidity position for a full year using acid test ratio (that is, taking cash plus current receivables against current liabilities) Persimmon still comfortably beat both Barratt and Taylor Wimps on that basis as those positions stand.

However, that's taking a view of the company's relative strength without regard to the relative value it may or may not represent for an investor, and the price one is prepared to pay for that superior balance sheet ~and it is a much higher price in Persimmon's case ~ is something else altogether to conjure with..!

Ironically, perhaps, Crest Nicholson ~ currently well & truly in the investor dog house based on its truly dismal share price performance since returning to the market in 2013 and its consequent seriously low relative price to book value currently ~ is best in show (sticking with the dog metaphor) when it comes to rating them by acid test ratio.... they pass but Persimmon fails by a sliver...

BTW, I don't know how you assess the worth of different shares other than you've said you don't pay much regard to current price earnings ratio (P/E) - but I'm with you to that extent at least....

Far more important to me is the long term average P/E blended with the current price to book value at any time and taking into account overall liabilities as a percentage of net equity - because everything in liabilities has to be paid at some point in time...

Strictly