Member Info for strictlybricks

Steph,

"I've started to sell up TEF and diversify into Strictly's builders 3. Crest, BWY and RDW. "

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I haven't been on here for a while, and haven't scrolled back, but I have just seen your comment above...

I've probably mentioned it before on here but you're welcome to join the blog I started several years ago that some of the regulars here (including musketeers!) have joined and have participated in the discussion there because, as the name implies, it focuses on the house building sector as a whole looking for best value rather than any one company and this may now be of more direct interest to you....? (having said that, I'm intending that my next blog post is all about Telford...)

I came completely out of Telford straight after the trading figures.... I may have called it right value-wise given that this was underlined, I feel, by this offer for the company, but at the same time I was fairly well stuffed by the market as I took a low price compared to what it is now having given the value weighting a sharp downgrade straight away such to make the share more expensive in value terms than others such as Redrow and Bellway (rather more so than Crest currently).

But such is life.... that's something I have to live with (that nutter, the market, I mean...) if I'm to always pursue perceived best value (the key word being "perceived" - because I certainly don't always get that right).

Redrow aren't big on giving out trading updates, so we may have to wait until their full year figures, but even if we go with the scribblers' EPS forecasts (and they're traditionally under), Redrow are on for a return on equity of over 22%.

And on a current PBV, by my reckoning, of 1.13, I don't see how that can be anywhere near fully valued...?

But in the end, value, like beauty, is in the eye of the beholder to some degree, isn't it?

So we all have to call it for ourselves, and you only have to click on the share chats here for some of the other house builders to see what a diverse range of opinions there is out there..!

Strictly

Cyber,

"I still like BWY and RDW because of their relatively low PBV compared to the other big builders..."

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Also not forgetting their superior ROE to the tune of 4% or 5% against Barratt and Wimps, of course.... put the two markers together makes it a bit of a no-brainer, really, doesn't it..?

And I think, based on recent discussion between us separate to this share chat, I think we're both still waiting to see how Crest shapes up in the near future....?

Despite all the hoo hah last year, they did still make an ROE of 22.4% last year - something which neither Barratt nor Taylor Wimps have achieved in any single year between them since before the credit crunch, yet you can currently buy Crest at a 30% PBV discount against Barratt and a 40% PBV discount against Wimps.

Funny old thing, the market, ain't it..?

Strictly

Well, Mr Market doesn't seem to like Taylor Wimps trading update this morning much does he..?

I'm not surprised...

When you state specifically "sales pricing has remained flat" and "build cost inflation for 2019 to be c5%" and then later on add a rather fluffy "we expect margins to be slightly lower" you surely just leave investors to conjure with what the word "slightly" might mean in this context...?

I'm now penciling in 17p to 18p for 2019 EPS, and that's well down on what the scribblers had up to this morning...

Of course, what do I know - I could be well out...?

And I don't hold any Taylor Wimps shares - too expensive for the likes of me, guv - but obviously it's whether this is a broader indicator for the sector at large that is relevant to us here...

And I guess, given that Wimps is one of the big boys, that Mr Market will be looking closely at what the next big boy has to say - Persimmon, due on 1st May..?

Strictly

Sain,

I'm not part of this TEF chat horse racing malarkey that pops up here from time to time, but Terrace, who clearly does pay attention, gave me a heads-up on the name of the first winner yesterday at Aintree....

And clearly, you, Steph and Terrace all missed a trick there...!

Strictly

Cyber,

Risk, or the lack of it, is one thing but rate of progress is another....

And it's the latter that more concerns me.

I mean, I've got Redrow and Bellway in for twice Telford's ROE for 2021 as things stand.... trouble is, how to get a reasonable bead on Telford's prospects... seems that I've got to rely heavily on the scribblers as things stand.... for me, that's a dismal prospect as I don't have much faith in them - their track record on the likes of Redrow over the past few years is pretty p... poor.

Maybe a topic for conversation next week...?

Strictly

Cyber,

If we take Edison's figures - which I have done in the face of a fair amount of befuddlement about Telford's prospects now and in the absence of any other up to date forecasts by scribblers - they have Telford's ROE for 2021 down as 9.5% (extrapolated from their EPS forecasts, that is....)

Building in 10% a year EPS growth from there, against only half that for star players Bellway and Redrow so that's probably pushing it, makes Telford still overpriced against the others by a margin - purely as per the figures thrown out on my spreadsheet and with a weighting now down to 20% or lower.

So, while TEF isn't out of the frame for me, it's currently too expensive IMO when compared to other builders with a good long term track record and a clear continuing plan going forwards...

But you knew that already because we've discussed it on the blog..! :-)

Strictly

Terrace (et al):

"With a current NAV of 330p per share and PBT guided to be a total of £95m over the coming three years,why on earth is the present SP below the value of the company's assets?"
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I can't pretend to know the mind of the market, but with the adjustments to EPS and ROE that I put into my spreadsheet going forwards (and without going into all the ins and outs of a duck's whatsit here on that...), the alterations due to the trading update took my estimated BVPS 2026 down from 615p to 480p.

That's a 22% drop which, by coincidence (happy or otherwise), is also close to the initial market price drop.

So I imagine the market drop was about perceived change in long term value rather than taking a direct view on what BVPS is now - but then, what do I know..?

I am also now allowing for the uncertainty about the nature of the market Telford are going full steam ahead towards...?

I think I understand something about the overall house builder market well enough.... long term, the sensible builders average about a 15% ROE, which I'm happy with.

But let's be fair, this is all a relatively new and unfolding game for TEF, and, like Brexit, we don't really know how it's going to unfold.

But we do know, with the nod about this year's and next year's figures, that's now six years in succession of disappointment (certainly in comparison to Bellway and Redrow - who are both obviously normal house builders)

Anyway - who will be holding the whip hand in these build to rent partnerships, for a start..?

It's one thing taking 10% non-returnable deposits off owner occupiers and individual buy-to-letters, but TEF are now swimming with big boys as customers...

This might end up being a single digit ROE game for them...?

We don't havespecific about that, do we, and, frankly, I'm only prepared to base my investing decisions on a combination of direct company guidance, track record and common sense rather than what the scribblers might have to say (I thought "Exdividend" nailed that one on the head rather well in his comment here Monday lunchtime).

The upshot for me is that I reduced Telford's book value weighting from 60% to 20%, i.e. 160% against Bovis 100% to 120% against Bovis 100%, a drop of 25%.

That was probably a bit harsh, but I built in some margin of error for the unknown.

Other things being equal, a 30% weighting probably would have been about right... however, given the price rise since, that still now makes Telford too expensive for me against the others so, if I hadn't sold last week then I'd no doubt have done so today.

And, as a relentless follower of value, there's no point in having any angst or regret about not waiting a few days.... that's trying to call the short term market movements - the road to ruin in my view...!

Strictly

Demos,

Just to add some clarity to the numbers I used - otherwise it's going to just look a schoolboy error on my part - I don't use declared earnings for EPS - the great myth of the so-called value in the FTSE100 has been built on that one - but instead work from balance sheet to balance sheet BVPS, adjusted for divs paid.

In this way, some companies tend to come out better than at first glance, and some worse.

Last year, Telford were the former (and Galliford are serially the latter - which is why I don't touch them with a selfie stick), end of year 2018 BVPS 307.5p less start of year BVPS 271.3p = 36.2p, plus 16.5p paid in div = 52.7p balance sheet calculated EPS = 25.0% drop in earnings to 39.5p which is the corollary figure of using the guided March 2019 BVPS 330p.

Of course, this is just how I calculate the numbers - and it may not suit others and I'm only explaining what I do here rather than advocating any alternative system (I remember Josh95 was quite disparaging about all this on here some while ago - but then, he';s entitled to his view too...).

But, this way, you wouldn't need to even see a P&L account, you just need a balance sheet, the number of shares in issue, and the actual divs per share paid in the year...

And with this, you can just go on ad nauseam, and it gives you the ROE, and, IMO, everything else is just so much interesting talk around the topict.

So, maybe I've now become a bit controversial on this share chat about this, but surely the whole point of coming on here is to share ideas about things from time to time, and to take, or to not take, from these as appropriate..?

And I think that if the scribblers - in-house or otherwise - saw this TEF update coming they were certainly playing their cards close to their chests...

So, that becomes another choice, doesn't it - how far do you want to trust your money to what the analysts think or, more accurately, what they say - which may or may not be the same thing..?

Strictly

As I think all the posters who comment here regularly would agree, the Telford trading update this week was quite an oil spillage on the track (I'm using a driving metaphor as we now have "Strictly Wacky Races" on the blog for this year - being a friendly competition based on monthly laps and percentage gains made...).

The guided 330p BVPS for March by my reckoning gives 2019 EPS of 39.5p and ROE of 12.8% (i.e. ROE substantially down on last year's 19.4%).

So far so straightforward, but what to make of this part of the trading statement comment..?

"...we now expect profit before tax for FY 2020 to be significantly below FY 2019"..

The 2018 to 2019 EPS drop is around 25%, so I've penciled in for a similar percentage fall for 2020 and put in for an EPS of 30p for that year.

This gives a 2020 ROE of 9.1%.

Given the seeming state of flux for Telford right now, I think it would take a better man than me, Gunga Din, to come up with any sort of figures for 2021, and beyond, with any degree of confidence....

So, this is all rather a disappointment, isn't it..?

Especially for those of us heavily into Telford - as of the night before the trading update, it had been my largest holding at over 30% of portfolio, and I'm mindful that some here on this share chat are much more committed than that...

Anyway, based on all the above, I took Telford's book value weighting down from 60% to 20%...

Those of you who are also part of the blog will well know that book value weighting is my device that rates each builder against a baseline of 0% weighting for Battersea Dogs Home, AKA Bovis.

And that rather sharp weighting reduction has taken Telford from being prime value, (only IMO, of course) to being relatively overpriced - though not by so much that they're now completely out of the frame.

The upshot for me is that, as things stand, I'm now fully out of Telford for my own various accounts and others that I look after - that money having been moved into Bellway and Crest (both being currently slightly better value than Redrow at present, IMO, though I am also holding Redrow shares).

I suppose that, from here, we'll have to wait on further guidance from HQ...?

Because, right now, looking at Telford, it feels like I've got dark glasses on.

Strictly

The takeaway figure for me with Persimmon's numbers this week was that their return on equity had come back to earth at 26.5%...

This is still a great achievement, but now it's only 0.5% above Redrow's 26.0%

And you can buy Redrow shares for 1.36 x book, but for Persimmon you have to pay a heady 2.53 x book....

Could be the man who fell from Mars, at some point..?

The other noteworthy aspect of Persimmon's figure, though, is that it is a big reduction on the previous two years' ROEs which counted in for the team's staggering bonuses.

Now the bonus measuring period is over, the ROE has fallen...

Funny coincidence, that..?

Still on all things Persimmon, it will be interesting to see if the government does take their toy (HTB) away...? Do they really have the cojones to do that though - dangerous thing to do to open up another front (risking damaging house construction numbers...) when they're also in the middle of hopefully not screwing up Brexit..?

And Taylor Wimps figures today...

ROE of 19.7%, almost bang on Telford's (which is 19.4%) and well below Crest (22.4%) and Bellway (23.8%).

However, for the joy of owning Taylor Wimps shares, you've got to pay 1.75 PBV against Bellway 1.34, Crest 1.10 and Telford a mere 1.04.

That's the bliss of being big enough to be in the FTSE100, I guess...?

Strictly

Sain,

To put some numbers on that (generally a good thing to do, IMO...), Telford's ROE for the past five years has been consistently between 18% and 19% for the past five years if you ignore the inconvenient blip down in 2017.

Whereas, Redrow's ROE has been consistently between 24% and 26%, if you ignore that for 2014 it was still in recovery mode and only made 15%.

And the market is currently pricing Redrow at 1.27 PBV and Telford at 1.02 PBV.

And if you apply the respective book value weightings that I use for these two (which are 100% for Redrow and 60% for Telford) that puts both weighted PBVs at 0.63.

So, my best assessment is that, while the market may or may not be calling TEF's price right against cash - and furthermore that the answer to that doesn't concern me as it's not of any current practical use to my investment decisions - I think the market is absolutely on the mark in its assessment of Telford's share price against Redrow's share price.

And, right now, that's as much use to me as a chocolate fireguard too - as there's no perceived value gap whatsoever for me to trade on...

Unlikely to stay like this though..... it wasn't last week, and it probably won't be again by next week...

Strictly

Steph,

Well, that's our job as investors, isn't it..?

The market sets a rough benchmark - and, I mean, a REALLY rough benchmark - and it's down to us to decide whether it's right or wrong.

If, as a TEF musketeer, you only intend to invest in Telford, then I suppose your decision-making around that is when to buy more or to take a spread bet (the latter is above my pay grade.... I had to google it to find out what it even was.?).

Whereas, as you've probably picked up by now from previous posts, I'm almost entirely uninterested in how the market is valuing any share against cash at any point (other than when I want to draw some down for living costs) but very interested in how it is valuing one builder share against another.

If I'm correct that you're alluding to TEF becoming capital light in its future requirements, I think the jury is still out on that, as you need to effectively multiply the lower capital required (from TEF's pocket) by the time taken from start to finish for typical projects.

And the market has seemed undecided too in recent years as TEF's share price has hardly shone against others... my own view is that, relative to the other fairly priced builders, it is now right in the zone...

And, anyway, the answer to that "sum" can be expressed as an overall return on equity - which leads to the growth you mention insofar as the value of individual shares are concerned, which to me is the important thing rather than where the company as a whole might go...

And that is the commonality with the other builders and from that, IMO, you can assess an "exchange rate" and so come up with a "currency" by which you value each builder against each other at any time.

I appreciate this is perhaps somewhat non-standard, a "Strictly invention" if you like, and to come back to the point I think you're making, the overall "sum" has thus far left TEF lagging the high performers in ROE terms - but that's okay, it doesn't have to operate the same way and surely there's a fair price for every share it's just a matter whether it's reached it or not...

I think I've started to waffle a bit here.... haven't had a cup of coffee this morning yet...

Strictly

Steph,

As Cyber and I have discussed on the blog in the past in various ways, and have looked at numerous graphs to this end, it's probably easier to try to make sense of builders' share prices based on price to book values rather than price earnings ratios...

In this, and taking an overall long term view, the market has been surprisingly consistent...

The long term average price to book value for house builders at large has been around 1.5.

That applied equally before the credit crunch, and going right back to the '80's and also post crunch...

And that's substantially below any rational view of fair value, IMO, but it is what it is...

And the PBV can fluctuate quite wildly, as we've seen - for Telford as much as for any other,as their PBV went crazy, right up to about 4.0 in early 2007 (the highest I've ever seen any builder go) then plummeted down to 0.2 two years later.

And all Telford did in the interim was carry on making money...

But if you ignore whatever you think Telford's, or any other builder's, share is worth and just go with the market's average view, 1.5 PBV is its overall idea of fair value.

So, at close of play tonight, Telford is at 1.02 PBV, so almost a whole third off it's own idea of fair value.

So, yes, unless the market, in its assembled wisdom, knows something very different to us insofar as anyone's commented here, Telford et al are all rather cheap right now..

But I think that if you spend too long trying to fathom what's going on in the market's mind, you're likely to end up getting yourself "sectioned"...!

Strictly

Steph,

Interesting timing for that link from my point of view (thanks for putting it up, by the way) as I'm part way through trying to put together a post for my blog that is aiming to look at a long term perspective on all this - in terms of "golden ages" because, by definition, they have a beginning and an end and IMO it's a matter of trying to understand whether we're in one at present and, if so,what kind of one it is...?

I'm not sure the writer of the article on your link is digging deeply enough in his comments though - he might have included the role of banking and, having just taken a quick butcher's at the sort of stuff he generally writes about, I'm imagining he well knows his stuff, but he's made no mention the role of gold standard, currencies pegged to the dollar, fiat currency, and all that malarkey.

That's the trouble with being given an article to write - along with, presumably, a maximum amount of words to use..... reflecting the attention spans of the world at large, I suppose...?

For the writings of someone who seems to be very much on the same song sheet as me about all this, but who clearly knows a lot more of the words, have a look at what Stephen Marchant has to say...

You could start with just taking the five bob tour, and reading his half a page of financial predictions:

http://www.money-liberty.com/gallery/predictions-2019.pdf

And, if that strikes a note, go on to his blog, and, for the full monty, read his fifty-odd page online book

http://www.money-liberty.com/#home

Meanwhile, for those of you on TEF chat who are also on the blog, I'm hoping to get the end of January post sorted in the next couple of days or so now that the friends visiting us here in Espana have just this morning headed off back to Blighty.

As part of that post, the curry contest has now morphed into Strictly Wacky Races - and we've still got space for a couple more contestants..!

Strictly

Steph,

Trying to call the short term movements of the market is usually a brave thing to do, IMO...

I have a personal mantra that applies here, which is "I'm more fearful of being in cash when I should be in shares than I am of being in shares when I should be in cash".

If that sounds a touch glib, trust me, it ain't meant to, as it took quite a number of years for me to firmly come to that view....

But the upshot is that I've remained fully invested throughout the nearly two decades I've been in this game (apart from cash earmarked for living costs or plan B savings) and, even though I had to sweat it out all through the credit crunch, I don't have regrets about taking that decision.

As ever, I'm not trying to advise anyone else on how they should approach this though...

Strictly

Terrace,

"I meant a proper breakdown of the constituents and who valued them."

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That's probably somewhat above my pay grade.... I'm just using the published information...

And, frankly, I'm probably a bit less concerned than others here about the short term fluctuations in how values are expressed in accounts as, in the end, inevitably, the truth usually comes out on the balance sheet (rather than those works of fiction, P&L accounts) if you're taking the long perspective.

Since the credit crunch, Crest have done pretty well.

And, before the credit crunch, 1994 to 2006, Crest's ROE was better than Persimmon's - and look what you've got to pay if you want Persimmon's shares, even now... (2.3 PBV compared to 1.0 PBV for Crest.... ouch.... too high for the likes of me, guv...).

Then remember that the companies had different ways of dealing with adjustments to land bank valuations after the crunch.... Bellway hardly changed theirs whereas Persimmon made a big write down which made their post crunch profits look good compared to Bellway.

But that's either sneaky or good marketing depending upon whether or not you're well disposed towards Persimmon - the real picture emerges once you start from a pre-crunch position.... follow the ball, not Ronaldo's legs... Persimmon have improved their pre-crunch BVPS high by 64% and Bellway theirs by nearly 3 times as much at 178%...

Why would anyone want to pay twice the price for a third of the long term performance....? Maybe Persimmon have morphed into the dog's whatsits, and maybe they haven't, and I wouldn't want to bet that much of a premium on it...

I appreciate I'm starting to ramble - no change there, then - but it's these sort of numbers IMO, that are the indicators to pay attention to if you want to cut to the chase through all the froth and sales pitches.

And Crest's current-to-pre-crunch peak performance ain't great, at 33%, but then they had that well known Scottish businessman (so well known his name escapes me for the moment...) who was reckoned to be north-of-the-border's answer to Richard Branson who bought Crest on a leveraged takeover with a bank and who got his timing spectacularly wrong, buying as he did right before the crunch.

He stuffed all the interest onto Crest's P&L account (even though it wasn't their fault their new owner turned out to be a bit of a high flying financial muppet) so they had to take all that on the chin....

So, like I say, I'm now rambling - to the point where I've lost the drift of what I was trying to say...

The bottom line, I suppose, is that I think there's probably a lot of comfort priced in on Crest - the same as see it for Telford...

But please don't take that as any form of investing advice from me...

Strictly

Terrace,

I just managed to delete my own reply mid-comment, but I had picked up the correct number...

Have a look at note 16 on the accounts - usual detail there...

And Cyber, ref your comment on the blog just now about where the additional balance sheet value came from, i just found £10m of it in responding to Terrace here... it was reducing a past reserve and is in note 16.

Strictly

Sain,

As I commented on the blog earlier this morning, just after you posted there (I thought that you were in quick, but then I'm not an early riser...!), I was happy with Crest's figures reported today...

But then I'm using start and finish balance sheets, adjusted for dividends paid, to give me what I consider to be the true earnings figure, rather than just the stated EPS figure - which can sometimes prove to be b****cks, as in this case.

Crest do have "previous" on this (nowhere near as bad as Galliford, the Vicky Pollard of house builders, mind...), but this time they were on the "nice surprise" side of the story...

I appreciate that not everyone shares my ideas about doing this... I recall a conversation with Josh95 on this share chat about all this some while back, and he was seriously unimpressed....

But we all just have to pay our money and make our choices in this life don't we..?

I might have got my calculation wrong, of course, as I'm at least as prone to schoolboy errors as the next person, but I've got a working EPS for Crest, for the year just reported, of 68.9p which is somewhat different to the declared 55.7p.

And it also means that the ROE, the high priest of indicators IMO, was 22.4% for the year against the 18.1% you'd no doubt arrive at if you worked it out in the usual way.

I'd added some more Crest yesterday, and in the days before, such that it's now my largest holding, which I'm happy about, but the market's unfortunately got there before me this morning for any further moves...

Note to self - get your a.se out of bed earlier next time :-(

Strictly

Sain,

Well, I hope that, at the least, you demanded your beer in a thin glass - a la Michael Caine...

On a "more relevant to this share chat vein", it does seem that I find myself a lot more optimistic then you seem to be about the likely prospects for house builder share prices over the course of this year.... the "likely" aspect being to do with whether we get some clarity on Brexit before 2020.

Even if it's not twenty twenty vision...

Strictly

Mark,

You might be just a little bit out of date there...?

Surely, these days, it would be a matter of having a "Euro" rather than a "punt" on Abbey...? :-)

Strictly