Member Info for strictlybricks

Ex div....

Nitb From your post, I would say that a difference between our perspectives on this is that you are considering size now and where that is potentially heading going forward and I am looking at profitability present and potentially future. And while Crest have recently made indications of an ROE down from mid 20's to probably around 20% this current year, Inland's, despite good noises made by management, fell from over 14% to 10.8% just reported. And that, combined with the serious lack of market liquidity I have experienced lately trading this share, was enough to trigger a move out to Crest and which fortuitously has served me well considering the hammering Crest's share price has taken while I've been parked in Inland. And the liquidity issue means, for me, that I am unlikely to revisit this share - though I am not passing long term judgment on it in other ways and of course always DYOR Strictly

To echo Sain's sentiments, but rather more simply and prosaically using just some core numbers, I was disappointed with Inland's results.

There seemed to me to have been encouraging mood music emanating from Inland about their forthcoming figures, but the actual outcome was that their return on equity fell from 14.6% in 2017 to 10.8% this year just reported.

That's a big drop, and that's before you stand the number against the return on equity performances for Crest, Bellway and Redrow which all start with a 2.

Inland might have been the share to be in for this year to date based solely on share prices, but that's about what the market is doing and i'm more interested in what the company is doing.

I think you have to be careful how you view some assets, as Sain has suggested.... on a PBV basis Inland obviously look well cheap, but a chunk of that value is in property waiting to be developed, i.e. sitting there largely scratching its bum, and that has had a negative impact on profitability as above.

I am grateful to Inland for the period I held their shares (bought early this year) as although I lost a tad on them the money would almost certainly otherwise have been in Crest over that time - in which case, I would have lost more than just a tad...!

So, anyway, the upshot is that yesterday I sold all remaining Inland from all the accounts I look after for my crew, and that money all went into Crest - which seems to me to be currently stonkingly cheap, but of course that's just my opinion.

And I think I was fortunate that it was a day that for Inland was more liquid than usual given the results were issued.... otherwise I doubt that I would have got clear in a single day.

Strictly

Doctus,

I've just sent you an invite for the blog and also a separate email, so, if they don't arrive, please let me know on here and I can re-send....

Strictly

Doc,

If you've been reading this share chat for a while, you'll know that I also write a blog separate to this....

Some familiar names from here are also on it - in fact, most of those you've referenced....

If you're interested, and if you care to put an email address on here - albeit maybe one used solely for the purpose of making contact separately to this share chat - then please feel free to do so and I can then send you a link to join the blog, which is a private one and therefore can't just be accessed via the internet in the normal way...

Strictly

Terrace,

A capital loss is only a matter of opinion until such time as it's crystalised in a sale.....

And so we're back to the notion mooted in the recent blog post "Monopoly Money".

By which, for the people reading this who aren't readers of the blog, I mean that when the market's got a hard-on then that's the time to consider converting to actual cash if you want some then and, in the meantime, when it's suffering a bit of brewer's droop, that's probably the time stick with seeking out best value within the confines of the game and, in the meantime, make sure you have enough separate resources outside of the game in order to wait it out....

As you well know, that's my core approach.

And, once again, I think you are fully subscribed to this approach - after all, I've never noticed panicky comments from you on here worrying about short term TEF share prices...

And Cyber, re your comment earlier, I would refer you back to last year and what an underlying profit, & PR, disaster Bovis were at the time - and already the market, in its infinite wisdom, has gone into Supertramp mode...

"Crisis, what crisis?"

So, while I agree that recent updates from Crest have been a tad disappointing, the emphasis IMO probably has to be on the "tad" and not the "disappointing" and I would prefer to take advantage of what I consider to be the market's over-reaction rather than lose any sleep worrying about it...

I could always be wrong, of course....?

But then, like so many things in life, all of us here, I'm sure, are over 18 and old enough to fight & die for our country...

And so we "pays our money and we takes our choice...!"

Strictly

Terrace,

I just typed out a fulsome response to you but, annoyingly, it seemed to evaporate when I posted it...?

So I'll try again... probably a shorter one now, though, I'm afraid...

If you work for a company, your reward from the company is wages.

And if you invest in a company, your reward from that company is dividend.

And that's the only reward you get from a company for investing in it.

Because share price gains, or otherwise, come from the market, not the company.

And if you'd bought shares in Crest last May, your reward would be a 5.2% yield on your investment.

Now, however, the company is prepared to give you a 9.2% yield on your investment - which is a 77% premium on May last year.

In May last year, the scribblers reckoned that Crest would make 73p EPS for 2018, whereas now they think it's only going to make 64p.... so that's a 12% reduction.

And in both cases, the view was, and remains, that earnings will carry on upwards from here.

So, I guess you have to take a view and allocate your capital accordingly depending on where you see best value..?

IMO, I regard Crest's price fall as probably being a serious market over-reaction... I reckon Crest's shares were relatively expensive last May and now I reckon they're relatively cheap....?

Most probably, anyway....

And I also reckon, as a musketeer with Telford running through you like a stick of rock, that you are just playing Devil's advocate here in order to provoke a response from me...?

Which, of course, you have achieved.. :-)

Strictly

James,

Well, if you just take the scribblers' latest EPS forecasts and feed those into the book values per share to get best estimate of current book values (which experience suggests usually comes out within 2% of the actuals), you have Bovis (woof woof) sitting on a price to book value of 1.40 compared to Crest now at just 1.05.

And, for that big premium paid on book for Bovis, you only get a 12% return on equity rather than Crest's 21% ROE.

So, if Bovis is only currently fair value, as the market wants us to believe, what does one say about Crest..?

If the scribblers on the one hand are talking Crest down but, on the other, are sticking with their earnings forecasts (which up to when I looked just now, they are), there's surely something of a mismatch going on...?

Depends on how much notice you pay to the scribblers' opinions insofar as what they express, I guess - who knows what their agendas are..?

But for people who regard the dividend yield to be important (and I'm not one of them), 9.2% is pretty tidy, isn't it..?

Strictly

Rapper,

Rapper,

You sound a tad frustrated with technology..?

Assuming you did receive the blog invite, you only have to click the accept button and take it from there....

You could also email me, now you have the address, if you get stuck....

Strictly

Rapper,

I've just sent the blog invite and some covering notes - so hopefully you've now received all that..?

Strictly

Rapper, If you're happy to put an email address up here - even if it's just a temporary one for the purpose - I can then contact you directly and we can take it from there...... Strictly

Cov & Ex,

If you've read some of my previous posts, you'll probably be aware that, though I have a high regard for Telford, I'm not a TEF Musketeer so don't have an undying commitment to it as a holding...

The numbers clearly show that Telford's underlying performance from start to now has been above merely impressive - with an average return on equity since the beginning (in 2002) of around 20%, compared to typically around 15% to 16% ROE for other decent builders.

In other words, if you'd remained invested through that time in Telford as compared to, say, Bellway, and notwithstanding the varying impact of re-investing dividends at differing prices, you'd have roughly twice as much underlying asset at the end with Telford compared to Bellway.

And Bellway, IMO, is a top company.

The difficulty, of course, is the price paid for that asset.

Telford's adjusted price to book value went to the dizzy height of around 4.0 in 2006, with a share price of around 430p.

And it's still paying a price for that crazy market valuation, seeing as all it's done in the twelve years since is make money and yet last night's price was STILL below that 2006 peak!

And yet (and here is where it perhaps becomes contentious?), Telford is STILL not the best value builder share out there (IMO, of course).

And I reckon this is at least partly to do with their shifting business model towards what is considered to be a de-risked strategy for the future.

On the whole, I think we all work with fairly short term memories - which is maybe partly why we have boom & bust, property cycles, and the rest, and arguably the market is paying more attention to the profit Telford is making now - in the good times (which they still seem to be) and not so much on what might happen if a swan or pig arrives...?

Telford's MD is an accountant by trade, and I imagine, by nature too, rather than a salesman - and I suspect that that nature shows through to some extent in the strategy?

It may all go seriously Pete Tong out there, and the world is now a very leveraged place so it's quite likely - and then it's a matter of who is caught picking up the tab...?

If and when that happens, the TEF musketeers may well have their day..?

But, in the meantime, my own view is that while, against cash, Telford is IMO great value, I also think it's still not quite the best value to be found in the sector...

There's not much in it, at the moment, though.. :-)

Strictly

2227,

I just checked back to my November 2017 spreadsheet and I'd had Redrow in for 82p EPS for 2018 at that point but, since then, I'd got a tad cautious - slightly wobbled by the Crest figures, I would say, even though they are currently my largest holding with Redrow running close second - and before today did, indeed, have a figure in of 80p for Redrow EPS 2018.

And I've now upped my 2019 estimate accordingly...

You almost have to smile at the market's reaction today, though, don't you..?

Strictly

Rapper,

If you're happy to put an email address on here I could send you a link to the blog if you think that might help, as the stuff you're asking about is discussed at length there and in detail - it's private, so you can't get on there without an emailed invite...

Signing up to start can be a bit tricky - especially as you sound like you're as rubbish as me with these things - but you can always ask a young oik to help, as that's what I sometimes do....

The blog is just about house builder shares - hence the name - and there are a few familiar folk from this share chat who also comment there from time to time..

Strictly

Cyber, Terrace and Sain,

If one changes one's perspective, and look at this from a price to book value aspect over a minimum of five years, the average PBV tends to pan out around 1.5 or so for the likes of Bellway and Redrow...

Telford's a bit trickier on this front, because, apart from anything else, it a) it hasn't been around nearly as long b) there's also therefore more of a developing business aspect to it c) it has temporarily reached a great height on PBV in the past and 4) it's steadily changing its business model to become less and less like the aforementioned other two.

But, for Bellway and Redrow, whether 1.5 x book value represents fair value is up to each and everyone to make their own minds up - though personally I reckon that's well cheap, what we can reasonably say is that 1.5 is about the average the market will pay you so, if you let go of any thoughts about how profitable the particular company was in any particular year (because, pretty much, barring pigs, swans and the rest, they do tend to make money and therefore BVPS progress each year), then less than 1.5 is cheap and more than 1.5 is less than cheap.

And if the BVPS is nearly always moving forwards, the SP equivalent of 1.5, i.e. perceived market fair price, is nearly always moving forwards.

And bearing in mind the discussions we've had about land bank valuations on the blog, who can say for sure in any year whether the company has called it right..? But over the longer term, the truth must out anyway if there's been a fudge in the figures...

And the above is very much what I'm basically working to with some added tweaks for relative value between different companies.

So that happens to be my investing strategy in a nutshell, and I appreciate that it perhaps doesn't suit everyone...?

But, to be frank, I have noticed that this share chat seems to be being pulled more frequently into speculation about where share prices may be headed rather than its usual schtick of trying to get to grips with how the companies, and Telford in particular, themselves are actually doing.

Which, IMO, is somewhat more positive & useful...

My own concern is that if too much concentration is put on this, a la Taylor Wimps share chat, then this is a bit like exploring the ins & outs of a duck's rectum - and there is the danger, in so doing, of eventually disappearing up it!

Strictly

Terrace & Cyber,

So, as we've been discussing on the blog this morning, it's probably prudent to start budgeting for a declining return on equity going forwards for all the house builders...?

I did have that penciled in anyway as starting from the 2018 figures - until this morning!

Because Redrow's ROE has increased from 25.7% to 26.0%, rather than decreased to 23.4%, as I'd allowed for...

So that can't be all bad.... can it..?

However, notwithstanding the above, that decline in profitability must surely come about - and probably sooner rather than later...?

Either through the impact of the normal property cycle, or some mad pig on the wing, or the government successfully finding a way in due course to give the house builders a kick in the nuts (because they surely must be looking...?).

But exactly what the rate of ROE decline to come will be, well, that's a notion to conjure with, isn't it...?

Personally, I'm not overly bothered about it.... it almost certainly has to come, and even so IMO house builder shares are still stupidly cheap - barring the aforementioned pigs on the wing, of course....

Strictly

Nit,

I had a quick butchers at Gleeson to remind myself what would have put me off previously....

Just comparing to Redrow:

Gleeson BVPS gain over four years about 50% against Redrow about 100%

Div yield starts with a 3, like Redrow, yet Gleeson are paying out half their earnings in div whereas Redrow are reluctantly moving towards paying a third of earnings... they've said they'd rather not pay any div at current levels of profitability - an enlightened view they share with the Man (Warren Buffett - I think we're all fans here...?) but some of their investors apparently somewhat less so (enlightened, that is, rather than not fans of Buffett...)

Price to book of over 2.0, compared to Redrow 1.3

ROE 17% compared Redrow 23%

P/E 13.5 compared Redrow 6.7

I'm not venturing a view here, Nit, just putting down what I regard as the essential numbers...

But they are why I haven't dug deeper and therefore why I don't have any Gleeson...

I mean, the gap, looking at just these numbers, is pretty stark, ain't it..?

Strictly

Nit,

As the name suggests, I only invest in builders, and you have referenced two of my current three holdings.... in order, largest first, they are Crest, Redrow and Inland.

I don't know Gleeson, so don't have a view there, and Barratt are way too expensive for the likes of me, guv, on a weighted book value basis.

I am a fan of Telford, though I don't have it running through me like a stick of rock like some of the regulars here arguably do - which to some extent can sometimes make me a bit of an outsider here - but, again, right now, I consider them to be relatively too expensive, though there was a time, late 2016, when I had nearly all my investment capital in just that one share.

I have to say that I'm not intending to give you, or anyone else, any investment advice here so it's always a matter of DYOR, but if you're a fellow number-cruncher, like me,and are taking a look at Inland's track record, don't be fazed by the big jump in EPS for 2015 followed by the big fall in 2017 like I initially was...

This was entirely due to property revaluations that were one-offs in their respective years... if you, instead, pretend that the 2015 EPS was 4.0p and the 2016 EPS was 5.5p, and that the company then goes on to make 7.82p in 2017 (which it does) then percentage growth in earnings each year now looks great, at around 40% a year each year...

The share currently sells at less than 0.9 x book value - so low, it's a bit unnerving, to be honest.... but the team have built a company to then sell to a bigger player before for a good result (Country & Metropolitan) and one imagines that's the game again this time as they certainly ain't getting any younger (though the boss's son has recently been made up to director, so who knows..?)

So, anyway, the irony is that they also achieved a couple of bonus profit uplifts, in 2015 and 2016, on top of that great, normal earnings track record from 2013 to 2017, and the net result of all that is to make the track record look pretty crap at first glance...

The great unsung hero of the sector, IMO, is Bellway... it is the builder equivalent of "Ghost Dog" - if you're a fan of Jim Jarmusch and have ever seen that film..?

Anyway, good luck with your research...

Strictly

Terrace,

I wasn't suggesting that the EPS would double, I was talking about underlying asset value with dividends reinvested on the day and therefore, other things being equal, the invested value based on share price multiplied by the number of shares held (because divs re-invested obviously means a gradually increasing number of shares held...).

With EPS growth of about 5%, the lower end of your suggested range, and with divs reinvested at the same price to book value as now (so obviously that's an unknown, but you necessarily have to base a calculation on something...), by my calculation, the adjusted price to book value for 2026 (because that's the year my spreadsheet's set up for, and too much faff right now to re-set that for a later date and anyway I've now got a Sainsburys shop to do.. :-) ) at today's price would be 0.41.

So, if we reasonably anticipated an actual price to book value of 1.23 then (hardly an onerous target as that's lower than at present and Telford's share price is hardly flying at the mo..?), that would mean you'd trebled your money, with divs reinvested of course, between today and 2026.

And Steph is talking a longer timescale than that so, black swans, pigs on the wing and all those other fine euphemisms for investing nasties aside, I would have thought that quadrupling by a few years further on from 2026 should be eminently do-able..?

Steph is clearly the relative youngster amongst us here, then...?

My aspiration for 2032 and beyond is still be around and hopefully also still be reasonably compos... (though some unkind folk might suggest I'm already past my sell-by date for the latter of those..?)

Strictly

Steph,

I just had a quick play with those numbers, adding a few lines into the inevitable spreadsheet and copying the formulae down, and EPS growth of 7% a year from 2022 (with about 10% each year for 2020 and 2021 before that) still gives an ROE of 13% by 2032 assuming one third paid in dividends.

So 13% (for 2032, mind, and and above that the previous years coming back to 19.4% this year just reported) can still get you to your two doublings providing the dividends are reinvested at a modest price to book value (so, logically, you would surely want a low share price during that time or, at least, on the days that the divs are paid in?).

I think it's easy to overlook the impact of re-invested dividends...

Take, for example, the period I've got (hopefully) an accurate record of...

From start of 2013 to date, Telford's share price has gained 131% but, with divs reinvested at the prices on the days they were paid out, that figures rises to 174%.

And, of course, the difference compounds up as we go even further into the future (I haven't number-crunched that far, though - you'll probably be relieved to know..? :-) )

Barring pigs on the wing in the meantime, though, two doublings for you over the time seems a very realistic aspiration, IMO, bordering on being a tad modest...

Strictly