Member Info for strictlybricks

Steph,

Thanks for that and, without wishing to labour the point but also to be clear, I've heard the BOD talk about doubling every four to six years, that was at last year's AGM (I wasn't there for this year's...), but I and others there at that time took that to be talking about turnover rather than EPS growth...?

I'm reading your email of today as now saying the same thing, i.e. that we're still talking turnover, not EPS growth..?

Because otherwise, with the scribblers having TEF in for around 5% EPS growth for 2019 and 7% for 2020 then that's somewhat different to the 12% a year or more and which compounds over the years to reach a significantly different return on equity by the mid twenties.

So, I think that the upshot is that if you are saying it's turnover, not earnings, still being talked about after all then I can just stick with my existing projections - which are still a bit higher than the scribblers' numbers, just for a change, but not massively out of line.

Otherwise, that's such a significant new bit of information I would have thought it would be in print in an update somewhere..?

If it is, I haven't seen it...

But thanks once again for the reply - I thought I was bad enough making a pre-8am post on a bank holiday, but you really are an early bird, aren't you..? :-)

Strictly

James,

If you just look at the overall ROEs for each company, for 2013, both Bellway and Telford were pretty much level pegging, with Bellway @ 11.1% and Telford @ 12.9%.

For the last three years that both have reported (i.e. 2015 to 2017, as we don't have Bellway's 2018 figures yet), a gap opened up, with Bellway's average now 23.4% and Telford's average now 16.9%.

For 2018, Telford have improved, @ 19.4%.

IMO, it does all boil down to that one number for each company - regardless of how, in Telford's case, the business is split between BTR and other.

And Bellway's track record through the credit crunch was right up there, joint top, with Telford - so we might speculate about how it might go next time but it would be exactly that - i.e., speculation...

Obviously we each have to take our own view but, unless I've got some figures wrong, those are the actual numbers of the relative performances that form a big part of my starting point.

I think this is a record number of share chat posts, now, for me for a week - let alone for a day... and I think I can now smell dinner on the way...?

But it has now stopped raining here, too - albeit probably not for long.

Strictly

You're not wrong there... especially if you appreciate a good pub after a walk - plenty of those down here...

Terrace,

PS, and it's been peeing down all day here on Dartmoor, too, today... :-(

Terrace,

I'm much happier to take a view on value, and the likely trajectory of value, than I am on second guessing short term future prices.... especially as I have never considered I have the ability to do the latter.

And we may well differ on whether to take into account varying company approaches to land bank value - because, as I said recently elsewhere I don't factor that in for all the reasons given at the time - but that's just outlining my own approach and I'm not trying to convince anyone else on that...

The price at any time is obviously a key component of value, but it doesn't require taking a view on the future price.

So you've referred to "SP relative misappraisals" whereas more precisely I'm looking at "value relative misappraisals" which isn't quite the same thing, and doing that doesn't require me to take a view on where any share price may go from there in the short term, only where it is likely to move towards in the longer term in seeking fair value.

But I think it's a good thing that we have some differing investment approaches discussed on this share chat... that we're collectively not the "Cheery consensus" that Warren Buffett has referred to...

Strictly

Steph,

Thanks for that comment about the 12% EPS growth.

I hadn't picked up on that previously, and the comment in the AGM statement was limited to the reaffirmation of the £50m profit before tax for 2019 - which didn't really seem to say anything new - so I'm guessing that was a comment for the AGM itself...?

But that is encouraging, and I suspect I'll now review my budgeting upwards for Telford on that front..? :-)

The point I've expressed before here, though, is that Telford's overall ROE is down and this may well be reflecting an overall lower margin to be anticipated from BTR..?

No bad thing overall in itself if the payoff is a substantial de-risking in return going forwards...?

Strictly

Steph,

Well, it would be good to think you were right about the 14% growth a year in EPS as, other things being equal, that should keep Telford's ROE up around 18% going forward into the sun....?

Whereas, I'm taking a somewhat more cautious view in my budgeting, and I'm allowing for only half that growth (and hopefully I'm being a tad pessimistic there, but bearing in mind it also doesn't allow for any pigs on the wing...) which would take the ROE gradually down to around 14% - which is what I'm penciling in for the other builders by 2026.

As I implied, this doesn't allow for any future nasties - but I am mindful that politicians, and the public, do seem to have house builders at large in their cross hairs at the moment, and I suppose, in large part, we have the boys in charge at Persimmon to thank for that..?

Apart from that, history says that current profit levels are too high...

Long term average of 15% to 16%, plus adding maybe 5% to that a year by moving between shares to follow value (which, perhaps contrary to some views here, has worked well since my start in this game eighteen years ago...) and, personally, I'm well happy with that....

Black swans willing, of course...

BTW, it's a bit sad we're all chatting away here on a Sunday, isn't it...? Perhaps we all need to get out more..?

Strictly

Cyber,

I've just sent you, by separate email, the figures for Bellway back to 1983 - which is as far back as I have them for - in case that assists...?

The charting tool for Bellway on ft.com only goes back to 1988 now, but that does still mean you can look at what happened in the property slump around then and compare with underlying progress...

With regards to being perceived as having an opposite view to Terrace, I think the issue is that I'm very much NOT trying to make any call about the SP for the near or even medium term future as, ignoring the politics, whatever, that were existing at the time at any past point (which I think are possibly a hindrance more than a help most of the time..?), I find I am unable to make a direct connection between that and the underlying performance of the companies concerned...

So, I would say that where I differ from Terrace, Sain, Steph, et al is that they might hint at forthcoming price movement but I very much don't...

And, as you'll know from my labouring the point on the blog, I am entirely unconcerned about prices short term because history, going back decades, says they have always sorted themselves out in the end.

And, if you have a long term view - as most of the regular posters here seem to have - then that's what surely matters?

Anyway, look forward to hearing of the fruits of your further analysis...

Strictly

Steph,

I don't know how far back you go with Telford..?

And I don't know to what extent you look at the numbers in the accounts - as your valued comments here tend to be on the bigger picture of "Events, dear boy, events..."

Whereas, if I'm known for anything on this share chat - it's the numbers..!

So here are a few which I think are relevant to your post just now.

You brought the perspective of the price against company size now as compared to that of two years ago, to imply current value.

However, and I've just had a quick dig back into this as a refresher for this reply, if you go back a lot further, right to 2007, that really does bring a longer term perspective.

In the 2008 report, Telford announced (or, perhaps more accurately, as it was pretty low key, "slipped in") that they were intending changing their accounting practice to conform to IFRS standards as from the year ended March 2010.

In the event, they adopted this a year early, for March 2009.

And although it was low key, it was also a big deal...

In 2009, when they revisited the comparatives in the report for 2008, there were substantial adjustments....

Revenue down from £160m to £96m, net profit down from £12.3m to £4.5m, and BVPS down from 148p to 105p.

The bit I was interested in was the BVPS, as that's a component of what I consider to be by far the most important indicator, the ROE.

And that painful bump down in BVPS was big because it was adjusting down, in a single year, the accumulation of now over-stated BVPS each year since the start.

So, to have a more accurate figure going back in order to obtain a more consistent picture of Telford's long term track record (something I bang on about on this share chat from time to time), I fed this back into past years so as to show a consistent ROE - it had to be an estimate as Telford themselves didn't give these numbers.

And the upshot of all this preamble is that, by my reckoning, Telford's adjusted BVPS for March 2007 was around 105p (and if that's well out, and if JDS reads this, I'd be happy to receive a heads-up on the official version..).

I didn't adjust the turnover figure for 2007, but clearly it would have ended up significantly less than the stated £104m shown for that year.

And on 17th April 2007, Telford's share price hit 429.5p, i.e. over eleven years ago, it was higher than it is now!

And so, putting the price together with the adjusted BVPS, Telford's PBV went to over 4.0 at the time - and even Persimmon's giddy pricing back in October last year, when it went to a PBV of 3.3, didn't come close to that.

So, if Telford is currently cheap on a two year perspective, how cheap is it on an eleven (and a bit) year perspective..?

Who said I was an anorak..?

Strictly

Terrace,

You've only got to consider the increasing speculation on this share chat about where prices might be going to maybe have a clue..?

My own take on this is that all this stuff is like watching what Ronaldo's legs are doing rather than what the ball is doing...

The said ball being the value, of course...

Strictly

Sharply spotted, Terrace - because I, for one, most likely wouldn't have otherwise known that as Berkeley Homes isn't really one of the house builders on my radar for different reasons...

I just looked at the numbers on this, and in total Berkeley now hold just under 6% of the company's shares as treasury stock..

That seems to be a fairly significant amount to me..?

And it would seem to fly in the face of concerns about directors, supposedly in the know, offloading some of their personal shareholdings lately...?

My own thought about all this is that calling the housing cycle, which people like Tony Pidgley, of Berkeley Homes, and Steve Morgan, of Redrow, seem to pride themselves on being able to do, is not necessarily the same thing as trying to call share prices at any point.

Any examination of the long term track records of the more consistently performing house builders, over three decades or more, together with the share prices attached to those performances, suggests that there is not necessarily any obvious rhyme or reason for doubling then halving then doubling again of share prices which would be typical of what has occurred from time to time.

And, unless Messrs Pidgley and Morgan go into the confessional box (and who knows whether they are Catholics?) to tell us all exactly why they've recently sold shares, well, it's all just pundit speculation, isn't it..?

But for anyone who considers these activities to be significant (and I have to say that I'm probably not really one of them, though it's still good to know about them...), I would have thought that the point you've flagged up is somewhat reassuring..?

Would be interesting to hear what others think - but thanks once again for the heads-up on this.

Strictly

Terrace,

I could have added, having just returned home and updated my figures, that, since the start of 2013, with divs reinvested on the day paid, Telford's overall gain over that period is, by my reckoning, 175.8% as against Bellway's 235.4% and Redrow's 266.5%...

And, between the three of them over that time, as Blackadder would say, "More twists & turns than a twisty turny thing"

Strictly

Terrace,

In all likelihood, because Telford is, relatively, just on a bit of a roll this year so far against the others... taking its turn, if you like.... history suggests it'll pass the baton before too long, though...

And maybe it's about at that point at the moment..?

Who could say for sure...?

It's currently too expensive for me, though.

Strictly

Sain,

I understand about the itchy finger hovering over the trade button - I'm affected by that myself...!

Funnily enough, "Patience" is the title of the next item I'm intending putting on the blog in looking at all that...

But power to your elbow if you've called it right on going to cash... as I've said, I've never had the b...s to do so...

I fear that, if I do, that could be just the moment, with all the debt and quantitative easing of the past decade throughout the western world, that the value of cash finally started to reflect that (because I really don't understand why it hasn't so far?) and the price of shares with real value and assets, like builders, drifts upwards and onwards in a global paradigm shift of significantly higher inflation - which, of the three ways of reducing debt (repaying it, highly unlikely, and defaulting on it, well maybe... being the other two) - seems to be the favourite in my book...

All very well if you're in, and not so good if you ain't!

Strictly

Sain/Cyber,

So this probably boils down to just one thing, Sain....

Are you yourself intending to call the market in respect of any of your own investments...?

Because, as I've said ad nauseam on the blog, personally, I don't have the cojones to do so... :-(

But I'm interested to see how it goes for anyone in this game who does...

Strictly

Cyber,

You may have already seen this - as I bang on about it on the blog, but, if not, click on this link for the Nationwide's historical house price figures.

https://www.nationwide.co.uk/about/house-price-index/download-data#xtab:uk-series

I always reckon there's nothing like a few actual numbers to pour cold water on hyperbole...

Once you're on the page, look in the large box called "UK Series" and click on the fourth line "UK house prices adjusted for inflation"

When that page appears, scroll back up to the graph that's there...

I'll leave that particular picture to paint its own thousand words...

Strictly

Continuing the theme here, chaps, let me put some numbers on it...

And let me just use Bellway - which is my benchmark share - to keep it simple...

And, in any case, Telford's history doesn't go back far enough for a full comparison as the company no doubt wasn't even a twinkle in Jim Furlong's eye in 1994, which is the starting year for my comparative figures.

I've got Bellway in for 412p EPS for 2018 (lower than the scribblers); 444p for 2019 (about par with the scribblers) and 474p for 2020 (well lower than the scribblers).

Thereafter, I've allowed just 6% a year EPS growth to 2025.

By my reckoning, allowing for a consistent one third of earnings paid out as dividend, this would put Bellway's return on equity at 15.3% for 2025.

And this, in turn, puts their average return on equity, for the thirteen years from 2013 to 2025 inclusive, at 19.1%.

And this, in turn, compares with what I've taken as the equivalent thirteen year period leading up to the crunch (and I guess there's room for debate on that, but there you go...), which was 1994 to 2006, when the average return on equity for Bellway was 21.0%.

So, in summary, if all the above came to pass, Bellway would have been around 10% less profitable this time round compared to previously...

And we do have a few politicians getting their knickers in a twist about all this.....

But Persimmon haven't done any of us any favours, seeing as we are investors in the game of house builders' shares, because Jeff Fairburn, Persimmon's MD, is now apparently the best paid director in the entire FTSE100 (now that WPP have given Martin Sorrell the heave ho, that is) and that has obviously and reasonably naffed many people off seeing as a lot of tax payer support has gone into Persimmon and other builders.

And Tony Pidgley, of Berkeley Homes, had been lining himself up for the same sort of crack in 2006 and 2007, though he was ambushed by the credit crunch and it never happened...

But I suppose most politicians don't know about that and, anyway, if there wasn't any tax payer support going in it was hardly any of their business, was it..?

But the reality, in the cold light of day, is somewhat duller than the media would have you believe, isn't it..?

The headline could reasonably read "Builders making decent money at the best point of the property cycle, though not as much as last time"

That's going to sell a lot of newspapers, isn't it..?

Strictly

Doom & Gloom :-)

I'm not trying to call the price, as some of these builder head honchos seem to be doing, I'm only thinking in terms of value...

I'm budgeting (that's budgeting, not predicting, mind) for all the builders I've mentioned today to average over 15% ROE for the next whatever years - and I may well be wrong but this, combined with the past few years' big returns, still gives a good margin of safety against the average for the last cycle that I'm comparing with which is 1994 to 2006.

I mean, at an average 15% from here, they would still be under-performing last time round by a goodly amount - no matter how much some politicians are getting their knickers in a twist about builders' profits as most of them don't seem to see the picture beyond thirty second soundbites...

But don't get me going on that one...!

Anyway, if the next whatever years do average above 15% ROE, I still consider all these shares to be well cheap...

In the meantime, in the words of Michael Caine in The Man who would be King, "We've got to brass it out, Danny"

For, all being well, a better outcome than they achieved, of course.... :-(

Strictly

Terrace,

A few thoughts...

Just because the directors of the house builders are good at building houses, doesn't necessarily make them good at predicting the short term price movements of the market...?

I remember a telephone conversation about a decade ago with JDS, FD at the time, and mentioning that Telford's share had skyrocketed recently to about 430p - this was 2006 and the upshot was it put the adjusted PBV to around 4.0, which I've never, before or since, seen for a builder.

JDS's response was "Yes, it did go a bit high.."

I didn't get the impression that the share price was the be-all and end-all of his day..?

I don't have a lot of faith in the scribblers, but I'm probably being a tad unfair and they ain't usually that far off the mark by the end...

So, to the extent that you do take notice of them, by how much are their forecast EPS figures shifting downwards..?

Okay, forecasts for Crest took a small knock this year and, boy, didn't that reflect in their share price..?!

But all that happened on that was a tiny dip this year for forecast EPS and marching forward again in 2019 - as with all the others...

There seems to be more concern lately on the TEF share chat about where prices are going..... sometimes I think I've accidentally clicked onto the Taylor Wimps share chat by mistake... :-)

I have the impression that a lot of the posters here are in for the long term...?

And also that a number of them are true just to TEF

So, my question is: why even be thinking about the price, let alone worrying about it, other than, if it's too low, it's an opportunity to buy more...

As Warren Buffett has been saying for donkey's years, in the short term, the market is a voting machine but in the long term, it's a weighing machine.

So, providing the scribblers don't start wacking their EPS forecasts right down, if you trust in them, what's to worry about?

Yes - builders are making higher than average returns right now so I don't think we can reasonably expect that to continue.

But the likes of Bellway and Telford in the long term have still averaged above 15% ROE (and, in Bellway's case, that's going right back to the early '80s) and using PEG to evaluate on that basis would put their fair price to book values at above 2.25.

So, Bellway, Redrow, Crest and Telford... they're all still well cheap on that basis, IMO.

But patience being a virtue, and all that....

Strictly

CM45,

To respond to your question, UANC & BOOT aren't on my radar because, as the name suggests, I only invest in house builders with land banks and, furthermore, have invested solely in house builders for about the past fifteen years apart from a partial brief foray into supermarkets some years ago though fortunately I soon realised the error of my ways in that...

I like the security of the land banks (after all, what finer thing could you put your money into than British land with planning consent?) combined with not paying a big multiplier for that - i.e. that the PBV isn't excessive, so that knocks out several builders.

Then I'm looking for an underlying long term average profitability of at least 15%, so that filter also knocks out some of the house builders as investment prospects.

Then I don't like the house builders with a track record of borrowing too much - so that's Taylor Wimps and Barratt out of the frame.

And then I don't like companies with moody EPS figures - so that certainly knocks out Galliford...!

So, in my sphere of potential buys, remains Crest, Redrow, Inland, Telford and Bellway - currently in that order.

Bellway has been a long term under-sung star, IMO, with the most consistent track record of all of the house builders since the '80's and is therefore my benchmark share... and though I'm not a bible man, I'm a great believer in the wisdom of Mathew. 7. 16. and these long term track records are pretty important, IMO.

But Bellway are currently a tad expensive against the other house builders referred to above, albeit they are still a screaming bargain against holding cash, IMO.

The game for me is to be able to successfully move around between the above such that one can increase the gain overall beyond that of the underlying companies - and I'm happy to be judged on that.

Sorry that that was a rather roundabout way of explaining why the two companies you've mentioned aren't for me, I'm afraid (I write a blog about builders shares separate to this and I'm not known for being succinct there either...!)

Strictly