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Rapper,

If you take a Buddhist view of the world - by which I mean, aiming to see it as it truly is rather than how one might think it ought to be, then the long term average price to book value for house builders over the past few decades has been around 1.5.
You, I, and most people who frequent this share chat would probably agree that this is too low, I mean that it represents less than fair value...?

But no matter - it is what it is.

So, if you took 1.5 PBV to be fair value as far as the market is concerned - even if you don't happen to agree with that - then, providing you don't put yourself in a situation of having to cash in shares while it's lower (and that can mean waiting for years sometimes) you can work to always seeing your builders shares as being at 1.5 x book and so let go of thinking about all the PBV and P/E concerns and just concentrate on how the companies themselves are doing.

And I've referred to Bellway here as being my benchmark share, and Bellway's long term performance has been around 16% average return on equity.

So, assuming you're not up for switching between shares - as seems to be the case for some of the posters here, in particular the ex-musketeers - you can still surely think in terms of 16% a year average gain, other things being equal...

And that's hardly shabby, is it..?

And, to reference back to Nige's comments, where-else do you expect to achieve that from investment..?

But if you are already, like me, entirely invested in the house building sector, no doubt you already well understand that..?

Strictly

Nige,

"At times bdev, tw, psn and (mainly) rdw have been the leaders (but never bwy) and disagree that there are acres of difference (2.0 * to 3.3 *). All have performed well over last 7 years, and local issues are more important."
..............................................

If you accept the numbers I used in my previous comment - that Bovis had made 80% with divs reinvested since the start of 2013 and that Redrow had made nearly four times as much at 300%, would you not consider that to be acres of difference?

Anyway - that is an aside issue...

I haven't done any personal research along the lines of your notion about price movements around trading updates etc so am not in a position to take a view at this point..... do you have any summaries, etc, you'd be happy to share? You have my email address and if there's a discussion to be had it might be had more appropriately somewhere other than here...?

Not sure if you've managed to access the blog yet..? If you have, I'm imagining you'll understand I'm an absolute tart for pursuing best perceived value.... hence my comment at the start - would you not see different value in the different companies such that you get more bang for your buck with some than others and surely this is worthy of recognition in terms of how you'd value a £1 of book value of one against another..?

Also, from the blog, you would no doubt have seen that my benchmark share is Bellway - in that this is the share I have been comparing my investment performance against since start of 2013 which is when it occurred to me to start doing this.

My aim is to beat Bellway by an average of 10% a year.... I'm not achieving that this far - at present it's around 7%, and not helped by being seriously wrong-footed by Telford this year when I should have acted sooner on the numbers which were showing all was not well there, but I've stopped giving myself a hard time about that now...!

So, within the keen pursuit of perceived value, which is my absolute top criteria for investing, there is a minimal amount of wiggle room to perhaps consider trading on smaller value gaps if I came to consider that there is any mileage for me in what you are doing around company announcements - yet still be consistent with my own MO...

So, do you have any performance numbers you've recorded and which you're happy to share - I fully understand if you don't want to, and it's just any percentage improvements I'm interested in anyway - perhaps separately by email..?

I suppose it would help if you do manage to access the blog - then you would have much more chapter & verse on how I, and pretty much all the crew there of the same inclination on the blog, approach this game...

Strictly

Nige,

Firstly, re Steve Morgan leaving Redrow, he has expressed supreme confidence in his successor John Tutte - so let's hope he's right about that one....?

In any event, unlike diamonds, chairmen aren't forever, and they all have to move on sometime... my intention, as ever, is to closely monitor performance as we go against what might have otherwise have been anticipated and always in the context of how the other builders are doing...

And my second point is that there is acres of difference between the top performing and bottom performing house builders....

Of the ones I closely monitor, Crest are bottom of the pile, coming in at just over 80% gain since the start of 2013 with dividends invested on the day received.

On the next to bottom rung is Bovis, at under 150% growth on the same basis.

And star of the big boy builder sector is Redrow, coming in at just over 300% gain.

And one might surmise just from those numbers that Redrow has now become overly expensively priced on a comparative with the other two - however, IMO, that is very much not the case and I still have Redrow as best value of all despite their impressive market gain...

Those numbers alone, when you consider how well or otherwise one might have done just by being in the right or wrong share, are surely worth bearing in mind...?

And I'm aware, from there, that you have a process of moving some of your money around based on ex div, etc. dates, which I haven't got to grips with, and that this may or may not be working well for you..?

So that may or may not be a better process than the way I invest, but I am investing with zero speculation about short term pricing movements and I don't feel safe in doing anything other than that.

I can say, from the perspective of a long term personal investing track record, that it very much IS worth moving around between builders' shares, in pursuit of best perceived value, without ever resting in cash...

I do readily acknowledge that it all takes a bit of focus, time and effort - but it's definitely better than working for a living..!

Strictly

Rapper,

"so you've got a genuine 9.4% yield. Whats not to like?"

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

To offer a counter viewpoint, and one that would no doubt be endorsed by Warren Buffett considering that this has been his take on this his entire investing lifetime, the only reason IMO that Crest's big dividend is not a bad thing right now is that their shares are for sale at pretty much book value.

Whereas if, for example, in a world that was no longer contemplating its navel about Brexit and also one in which Crest had fully resolved their issues in London and which had led their PBV to rise to 2.0, that would mean the dividend was shelling out £100 of underlying book value to give investors that £100.

Whereas, with zilch dividend being paid, an investor requiring some cash could raise £100 by selling just £50 of underlying book value.

For a more radical example, look at Persimmon - who have not only been banging out humongous dividends as a percentage of earnings, this has been compounded by the fact that the share price has endured mostly at even higher than 2.0 x book....

The cynical among us might conclude that that was more about giving the shareholders a collective stiffy so that they would casually wave through the rather fulsome directors' bonuses without thinking about it too much... in that, one might say they were singularly successful..?

As ever, go to the numbers...

Over the six year period, 2012 to 2018, Persimmon increased their book value per share from 578p to 959p, a gain of 66%.

By contrast, over the same six years, Redrow (who have previously declared they'd rather not pay any dividend at all during this high earning part of the cycle, but have paid out about a third of earnings due to shareholder pressure) have increased book value per share from 151p to 410p, an increase of 171%.

Okay, you could have reinvested your larger dividend yield for Persimmon back into Persimmon shares but, at sometimes around 3.0 x book, you would hardly have competed with the Redrow's underlying growth (on which they are now arguably earning as much return on equity as Persimmon) and Redrow, like Bellway, remain the unsung heroes of the sector.

As I commented in the Persimmon share chat yesterday "...the market may sometimes be a muppet in the short term but it tends to get there in the end, doesn't it..?"

Strictly

Steph,

You make me a bit nervous when you use the word "recommend" in respect of me...

As probably anyone on the blog could tell you, I'm pretty paranoid about that - my aim is to tell people what I'm doing and explain why and then leave it up to them rather than make any direct recommendation....

I do like Crest as a company but, for me, they are currently behind firstly Redrow (where I have 87% of my invested capital) then secondly Bellway (where I have the other 13%).

I have Redrow quite significantly ahead, therefore reflected in my respective holdings.

Several things about Crest which bring down their book value weighting for me...

Firstly, they're taking their time recovering from their strategic retreat from London.... by contrast when Redrow sorted their situation on this several years ago, it was hardly felt in the earnings/balance sheet by the end of the year.

Secondly, Crest pay out more in dividend, half of earnings rather than a third.... this is not good news for the long term, though it seems many investors don't get this... Warren Buffett is a very well respected investor, over the long term, far and wide.... he's NEVER paid a dividend....

Surely there's a clue in that somewhere...?

Thirdly, Crest's balance sheets can be a bit moody, IMO.... for example, over the past two years, they've averaged around 15% ROE, yet the middle balance sheet implied 22% for the first year and 8% for the second - which wrong-footed me somewhat.... so they're not entirely to be trusted, IMO, and Cyber has a better track record than me on calling them out for that sort of thing - so I salute your perspicacity on that, Cyber...!

The upshot of the above three points is that Crest for me has a significantly lower book value weighting (and if you've managed to start reading the blog yet you should have a bead on that...?) and, even though its PBV is significantly lower than either Bellway's or Redrow's, for me it is currently poorer value... a relative 15% price drop is required to bring it into the zone value-wise for me to compete in value terms with Redrow.

Persimmon I'm extremely wary of for all the reasons in my earlier post today....

Strictly

I'm Interested to see what the market thinks of Persimmon's half time whistle today...?

I've got Persimmon down for 220p EPS for the year, whereas the scribblers have them in for 268p (against last year's 283p)

Declared h1 earnings this morning are 129.3p against last year's h1 134.9p, so the scribblers would appear to be on track.

However, rightly or wrongly, I don't use declared earnings as I consider tracking balance sheet movement to be more reliable.... and I recognise that this may be contentious, but this method has served me well over nearly two decades of investing.

So, balance sheet value of £2,837.2m less £189.3m goodwill = £2,648.2m divided by 317.9m shares in issue = 833p BVPS.

BVPS at start of year 959p, less 125p div paid and 110p div reserved = net starting BVPS 724p.

833p less 724p = h1 EPS 109p, which seems reasonable to my estimate of reality check earnings for the year of 220p.

220p EPS for the year would give a return on equity, the absolute prime indicator IMO, of 22.9% which by coincidence is exactly the same as I have in for Redrow.

Only problem, if you're a Persimmon, rather than a Redrow, aficionado, is that Persimmon, even after their poor 2019-to-date share price performance, are still on a PBV of 1.94 against Redrow's 1.14.

So if, AND ONLY IF, their performances are now aligned (and that may or may not be recognised by the market - even if by my method they in fact are..?), that's either a big further fall due from Persimmon, or a big rise due from Redrow, or maybe a combination of the two, to get them to equal value.

Now, this is an early start to the day to be crunching numbers for me as I'm not an "up at sparrowfart" sort of person - so I may well have made a schoolboy error (well, more likely a senior moment given my age) so if any fellow bean counters out there spot any mistakes (I mean other than disagreeing with this way of calculating EPS - as I'm sure mine is a minority viewpoint on this) then please comment accordingly.

I appreciate that, thus far, Persimmon hasn't really been a topic here and that there has been a healthy level of chat about PSN on its own board here on LSE, but I don't want to spread between two share chats as BWY seems to have become the new "local" - and also, I'm mindful that, as the current bad boy of the sector, what happens with Persimmon can affect sentiment more broadly...

Strictly

James,

I've just taken a quick butchers at UANC's company reports on their website...

I hadn't appreciated that they're in some way the continuation/takeover/evolution(?) of Terrace Hill - a company I had held some shares in with mixed results back around 2010 and 2011.

I didn't spend long enough there to learn how one became the other but, overall, my remaining impression of Terrace Hill at the time (rightly or wrongly, memory being what it is these days) is that it was something of a Vicky Pollard company, but I may have remembered it wrong...?

Of more concern to me though, even if the other indicators were good (and for me, they aren't) is that the balance sheet has grown at four times the rate of the net assets.

The other three quarters of balance sheet growth has been financed by debt rather than raising capital, and the upshot is that the total liabilities have grown tenfold from around £15m to £150m..

So, whereas four years ago, the total liabilities were under 5% of net assets, now they're nearly 40%.

And before anyone comes in with the fact that that is second only to Bellway in terms or balance sheet strength - yes, that may be correct, but the direction of travel is the opposite way as Bellway and Redrow, etc., are tightening not loosening.

And, as a nation, we are surely heading into very uncertain waters and, even now, probably we have no true understanding how choppy they will become..?

And it may well be that UANC can easily raise more borrowings at cheap rates, but if, like Barratt and Taylor Wimps, they get into cash flow/financing difficulties due to circumstances beyond their control, or even, like the true Vicky Pollard of the sector, Galliford Try, it is entirely self inflicted then, as we have seen, a rights issue to save the business, rather than issuing more shares at market price to support the sales pitch of sunny future uplands, is very punishing for the share holders - the long term holders of Barratt and Taylor Wimps could tell you all about that..!

BTY, I'm kind of writing this stuff on the hoof, as thinking about it is more engaging than the Sunday paper today, so there may well be one or two holes in my argument here...

However, having recently paid quite a price personally for not calling Telford on their direction of travel quick enough to have acted on it before their post-bombshell announcement price dive recently but also unfortunately compounding that by selling too soon to miss the buyout offer (ouch - and that wasn't in the air until it happened, was it?), and given that, it seems to me, some of their pain is around funding requirements for the longer term game they now find themselves in, cash flow considerations IMO are, or should be, to the forefront from here...

Anyway - let's see what lap 8, Strictly Wacky Races, brings..?

Strictly

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