Member Info for strictlybricks

Cyber, I omitted to comment on your second point. No, I haven't kept track of P/E's in the same way as PBVs. I think it would be a bit of a nightmare trying to make sense of those in any coherent, meaningful way as they change so much! But I do very much pay attention to the progress of profitability up and down - I bang on about it enough on this share chat, after all! - but I haven't come up with a way of charting it long term that I could imagine would be useful?

Cyber, you have access to my blog, and I suggest you go to a February 2017 post "Going to cash part 1 - The Old Git & the Dog" and look at the chart included in that which is the long term PBV graph for Wilson Bowden. And you should be able to clearly see that an average PBV of 1.5 was very much applicable to what had been a great company for investors until Barratt peed on our bonfire.

Exdiv, if one had drawn a comparison in May 2015 (the time of Telford's recent price high) between Telford and Redrow, the other company which has been under discussion here today and which was where I was mostly invested at the time back then, and if you'd just gone solely on the numbers - which I appreciate not everyone here is necessarily in favour of but which is my preferred method - then at that time, on a PBV basis, Telford were around 25% more expensive than Redrow. And furthermore, based on forecasts at the time, Telford's ROE was about 10% lower than Redrow's and thirdly the expected growth in EPS was about half for Telford of that which was forecast for Redrow. My point being, if you knew nothing of the individual companies barring these numbers, IMO there was a definite value gap there to be perceived at the time... I am not suggesting that Telford is anything other than a great company, and I am not suggesting that buying & holding a great company's shares is anything other than a sound strategy - it's certainly good enough for Warren Buffett, and who's to argue with him? - but there are times when individual companies clearly become relatively overheated compared to their peers. The irony with Telford at present is that their PBV is second lowest only to Bovis, the Voldemort of British builders, yet back in spring 2007, they reached the heady height of around 4 PBV, and in all the records I've got of builders' vital statistics (that's companies, mind, not individuals) going back for over 30 years, I've not seen any of the others ever come close... Though Persimmon might become a contender before too long?

Terrace, the problem is that an MD with minimal shareholding in a company along with big ambition and a big ego hardly has their own interests aligned with that of the share holders...? That's a plus for TEF, where the ongoing BOD seem to be accumulating shares and so no doubt are inclined to act in share holders' interests. And even better at RDW, where Steve Morgan controls, I think, 40% of the shares and furthermore takes no salary. Now - that IS alignment!

Sain, re mergers, I have no idea, but I hope not! A windfall, one-off gain for the investors holding shares in the company being taken over, and the loss of a player for ever more afterwards... I still cry in my sleep about Barratt's ill advised and ill timed purchase of Wilson Bowden, which had always been a splendid house builder that figured large in my investing activities. Whereas Barratt... no comment...

Sain, I suspect the answer includes a reluctance to grow too much.... After all, having ineptly managed the economy and then being prepared to throw pots of money at the "too big to fail" banks, the government (I don't choose between the flavours, I don't have much regard for any of them) left the "too small to be particularly arsed about" builders out to dry... In response, having been thoroughly bowed but not broken, the builders seem to be playing it safe... little in the way of leverage post crunch and plenty of dividends being paid. And who could blame them for that? And, as an investor (with probably a somewhat different perspective to a wannabe first time house buyer?), I'm happy with that.

Sain, I'd like to add a footnote to your comment that Persimmon "are sending huge swathes of money back to investors". From the perspective of investors, I mean the payment expressed as a dividend yield, there is nothing special about what Persimmon are doing payment-wise and it's more or less in line with the other builders including Telford (though not Redrow who, in a perfect world occupied by rational investors, would probably prefer to be paying no dividend at all at this stage of the cycle). What is special about Persimmon is that they had the foresight, not to mention the cojones, some years ago to copy Berkeley Homes with an announcement of a nine year plan for future dividend amounts. It gave the market a real hard on - which seems to still be there seeing as, on my figures, Persimmon is currently selling at just under 3 x book value. That's heady stuff for house builders' share prices! Must be some sort of investing viagra in those dividend payments..?

Perhaps to turn this round, given all the stuff you know & understand between you about TEF that I don't, do you have a view on what turnover and EPS might be for 2021, 2022, and beyond..? After all, that's what it really boils down to, isn't it...? For my part, I'm working with EPS growth of 10% a year from 2021 onwards, which makes for a gently declining ROE. But I would be interested in your thoughts - especially if you're thinking that maybe they'll do better than that?

"strictly, do you not take the type of factor that terrace points out into account when estimating future ROE?" Cyber, the short answer to that is no, I don't. I'm looking at all the numbers combined with company guidance, and I try to make sense of that by itself rather than trying to second guess by type of building or region of operation, etc. (and, in that, I'm aware I'm probably working rather differently to some of the regular posters here... but I think they already know that!) Even with the uplift to 63p EPS for 2020 that I'm using (and I'm not trying to say anyone else here should read too much into that, it's just my estimate for my own comparisons), TEF are still lagging their peers by around 4% on ROE. As I've discussed here before, if the forecast numbers do turn out to be accurate rather than merely over-cautious, it would mean TEF are paying a significant price in margin in return for de-risking. If something nasty is coming down the pike in the next few years, everyone invested in TEF might well all be happy with that trade off but, last time round in 2007/8, Bellway came through just as well as Telford with a very strong balance sheet as their de-risking tool - which they still very much have but yet are not paying a price in ROE. Bellway last reported year ROE 25%, last year forecast (figures not out yet) 24.3%. Telford last reported year 14.6% ROE, current year forecast 17.7% Having said that, at the moment I'm holding a lot of Telford and no Bellway shares. But that's because I consider Telford slightly better value when taking into both the above and current PBV. The value gap isn't much, IMO, but I do perceive there is one. As ever, this is only a personal perspective though, and just offered for consideration - and maybe debate?

Terrace, something like that isn’t really on my radar so I don’t have a view on it. What I am going by is the combination of: 1) The analysts’ consistent under-forecasting of house builders’ earnings in general 2) Telford’s track record for sale & earnings growth to date 3) Telford guidance for future sales growth 4) That they only pay out around a third of earnings in dividend so are looking to retain at least 10% more in net book value each year 5) The earnings per share required to make sense considering 4) and the resultant return on equity achieved. I suppose the two year time scale for building flats can make for bumpy turnover growth in a modest sized company year on year, and maybe the analysts have correctly assessed that 2020 will indeed be a year when the turnover is low..? But I’m not holding my breath on that and, even if it does work out that way, surely one might then reasonably anticipate a bumper year the following year to compensate? I suppose the thing for any of us who is interested in how this pans out – so that no doubt includes all the regulars here – is to keep track of the analysts’ forecasts in the meantime and note which way they’re heading?

I’ve just done some number crunching on the analysts’ projections for Telford. For what the regulars here all seem to consider to be an outstanding growth business, the 2020 forecast figures are hardly encouraging. They give sales growth of 5.7% and EPS growth of just 3.6%. When you consider the longest term forecast for Crest Nicholson, which is for 2019, is for 13% sales growth that year and even for Bovis, the Voldemort of builders, it’s 9%, the TEF forecast seems a tad pessimistic? However, while I haven’t kept tabs on the brokers’ changing forecasts for sales, I do have these numbers for the EPS for various house builders – and here we can probably take some comfort for the analysts’ poor track record. Firstly, to bring Bellway into this as being a particularly steady and therefore, one might imagine, reasonably forecast-able business with a long term track record, the analysts’ projected 2016 EPS for them shifted from 242p in July 2015 to 304p by September 2016. That was an uplift of 26% and Bellway’s actual EPS still beat that, coming in at 328p. For Bellway 2017 forecast, the analysts have so far moved on EPS from 281p in September 2016 to 359p currently. That’s an uplift of 28% and we haven’t got to the actual results yet. The number I’m going with that makes sense to me based on what is known is 370p – so I guess we’ll see on that? Coming on to Telford, The analysts have EPS of 58.1p forecast for 2020 whereas, if we accepted their 2018 and 2019 EPS forecasts, I reckon 63p for 2020 makes more sense. This would require an 8.4% uplift in forecast. The good news is that from September 2016 to July 2017, the analysts have already upped their Telford forecast for 2018 EPS from 41.9p to 47.3p and that is an uplift of 12.9%. So let’s just trust in the notion that track records usually win through in due course..? Sorry about all the dates and numbers folks – hope this is reasonably coherent come the end?

Terrace, as it happens, I did recently sell my remaining Bellway to buy more Redrow and I'm now split about 50% each with RDW and TEF... for no reason other than relative price movement (no doubt in anticipation of today's update) has now, IMO, made Redrow slightly better value than Bellway (though not by much, I hasten to add). I think that today's update continues to imply EPS of around 370p compared to the scribblers' forecast of 356p..? So, I guess we'll see on that one? Given the attention paid on this chat to Telford's anticipated doubling of turnover in the next four years, one aspect that could be of interest is that Bellway have done better than that over the past four years as they've increased turnover by 2.3 times. Yet not a single comment on the Bellway share chat since June.... They're a bit like the assassin in "Ghost Dog", aren't they?

Terrace, as it happens, I just put a note out two days ago on my own blog to let my lot know I'm now back up to 50% TEF with the rest split unevenly between BWY and RDW. I'm more than satisfied with the result of the return trip from TEF to BWY and back again (I haven't moved any RDW back at this point) but I do still fret about what I see as the whole core issue for me about the price in ROE terms that may or may not be being paid, now and in the future, for TEF's de-risking. I'm obviously happy with TEF as it stands otherwise it wouldn't once more be my largest holding. However, if JDS is being coy about the prospects and also if the analysts have got it wrong, TEF might be more of a bargain than it appears at face value. So there could be some substantial, as yet undisclosed, upside to be taken into account down the line (and no doubt we are all watching carefully for signs of that materialising), but I don't actually know that for sure, and I don't have the investing cojones that some of the regulars on here seem to possess....!

Terrace, I was disappointed not to find a single mention of a Stochastic Oscillator in the entire article...!

Thought you might like a break from pondering the macro and the micro and go for something in between for a moment? (while at the same time resisting the inappropriate joke about women’s legs…) As you probably understand by now, the ROE on any of these builders is the big deal for me in all this and for comparison with others (putting aside de-risking for the moment). The scribblers currently have EPS for TEF in for 47.3p in 2018, 56.4p for 2019 and 58.0p for 2020. That’s only 2.8% EPS growth for 2020, which seems pretty downbeat – it puts ROE still only at 17.1% by then whereas TEF have averaged about 20% from the start, including all the way through the credit crunch which is seriously impressive. I’ve got more detail about brokers’ forecasts for BWY than I have for TEF and, from those, you can probably take some encouragement. For 2016, the brokers started at 242p EPS for BWY and gradually brought this up to 303p. They were still well out, as BWY actual EPS for 2016 was 328p – so they started 26% wrong, which is about as much use as a chocolate fireguard. And all BWY did was pretty much what it said on the tin – so hardly rocket science, and particularly as they are arguably the steadiest and most consistent of all the builders. The figures I’m going with for BWY are increasingly different to the brokers. For 2017, they’ve got 257p and I’ve got 370p. For 2018, it’s 383p against 410p, and for 2019 it’s 417p against 450p. And all I’m doing is putting in the numbers that make sense for a gently falling ROE. If that gentle fall doesn’t happen, I’m under forecasting too. I’m likewise going with my own EPS figures for TEF for 2018 to 2020 of 48p, 58p and 65p until I see it otherwise – but this still only gets ROE up to 19.0% by 2020 so still lagging BWY (I’ve got BWY 2020 ROE at 22.0%, the scribblers are 20.8%), so I’m hoping I’m still under on these for TEF? Obviously, we are all looking for TEF to be pretty safe if the smelly stuff hits the twirly thing but, in the meantime, it’s fair to say that they are paying a significant price in ROE for that de-risking. Sorry about all the numbers – but they might take your minds off North Korea, Brexit and individual flat sales for a moment?

Sain - I did wonder, but I didn't want to ask.....

Steph, firstly, good to put a face to a nom-de-plume at the TEF AGM last Thursday... that was my first one... In your thinking for the long term potential of Telford as a company, don't overlook the fact that that is not necessarily the same as the long term potential of Telford as a share. Putting aside any discussion of de-risking and ROE (as we've done that one a fair bit lately on here...), there's the googly of the recent strategic move into institutional buy-to-rent and its potential implications for reduced capital funding requirements for TEF. This may or may not pan out as well as the regulars here may be hoping - and I don't suppose the BOD would want to be too bold in predicting that in a public arena - and the fast track growth you are looking for into the next whatever number of years may or may not need to be at least partly funded by share placings...? I'm not imagining TEF wanting to get too highly geared as that's not the current nature of the house building sector and would probably make for some nervous institutional investors..? And share placings are obviously diluting to existing share holders. I think a basic and mundane ongoing indicator for the growth intentions for house builders is the percentage of profits they pay out in dividends. In this, Redrow pay the least and furthermore have previously stated that they'd ideally like to be paying zilch at this stage of the cycle and at current ROE levels but, sadly, investors don't "get" it So they are paying dividends for a quiet life! I'm probably not the only investor who prefers a proven past to a forecast future. TEF's past is a really good average ROE, so I'm hoping that the current lower levels are part of the pain of the process of significant strategic change and that thought/hope is borne out in the EPS forecast growth which is bringing up TEF's ROE towards the other decentplayers in the sector (they always have been above Voldemort in the short term and, over the long term, have p..d past them). And Telford's past is also proven on de-risking - right up there with Bellway, albeit via different tactics, and the end result has been similar. So just keep paying attention to the numbers as well as the individual builds I guess...? And I'm imagining this won't be the last discussion we have on such matters... :-)

Terrace, if you open this up to considering PBV and ROE as well, then the only builder of note that TEF is outperforming on those two indicators currently is Bovis - whom we don't talk about. The difference being, of course, that we expect TEF's earnings to go up, relatively, in leaps & bounds and thereby significantly widening the performance gap between themselves and the Voldemort of housebuilders - and also hopefully start overtaking some of the others.... But, to perhaps answer your question more directly, for "Investment community" think "Market" and remember that the market's job is to mess with your mind... And your job is to not let that happen....!

Sonneteer, if you're down on your holding at 393p, unless you've held these shares since around the pre-credit crunch high, I'm imagining you bought in around the period late March to November 2015? Throughout that time, in my view (and it is only a personal view, of course) Telford were always overpriced against the best value in the sector - sometimes marginally so and sometimes substantially so. They didn't, IMO, arrive at best value until late 2016. But that does mean they had to experience a fall relative to the others to get to that point - and clearly, in your case, also a fall in absolute terms. However, I'm pretty confident that all the regular posters here would agree that TEF are now good value - both in absolute terms (the house builders are nearly always that, just the market, IMO, doesn't get it so patience is required) and also in relative terms - and that while you might still find equal value elsewhere in the sector (and I don't think everyone on here would necessarily agree with that - but never mind, it's only an opinion!) I think you would struggle to find better value right now. If you do manage that, I for one would be interested to hear the rationale for that as I'm sure that none of us here are infallible and surely the whole point of this share chat is to share thoughts and ideas rather than make it some sort of ******* contest - something that has been alluded to here a couple of times recently with comments about past posts... Personally, I wouldn't want to see this share chat ending up like one of the "Have your say's" for the BBC or the Telegraph online where countless little rivalries continually pop up - and while they can sometimes initially be amusing if someone scores a good direct hit, in the end it all tends to become a bit tedious. And I know this board is intended to be about TEF, but where else to you go to find the calibre of discussion we've had on here lately for what I imagine are a fellow bunch of house-builder-share-investing-anoraks like myself? :-)

Steph, to respond to your first paragraph, always seeking to be in the best value share, more or less (by "more or less" I mean not going right down to trading to try to take just a couple of percent), does work, and has worked for me over the fifteen or years I've been doing this. And so will hopefully continue to work for me and for the others in my blog group who are pursuing the same investment strategy. My aim is to keep improving at this, though, and this comes partly from trying to attain an ever more accurate view of any company's current position and future prospects and I've written quite a bit about all that on here in previous posts. The numbers on this since the beginning of 2013, which is about when I consider I started to up my game more in this in various respects, are that, based on start and finish share prices and with dividends reinvested on the day paid at the closing price that day for any company and annualised for this year being only part way through ( so only seven months' worth pro rata), Telford has returned an average 21% a year, Bellway 30%, Redrow 32% and my own stuff 38%. My aim is to be making 10% a year above my benchmark share which is Bellway - so I ain't there yet! But I like to think I've made continuing progress in learning throughout that period, and I expect it's going to several years yet to form a confident view of how one well can do with this at its best - maybe I've now taken this as far as I can in terms of tweaking what I'm doing and from here have to now just keep on plugging away? The other issue is that, no matter how well or otherwise I am able to value these companies against one another (I'm not really attempting to value them again cash - I haven't had the cojones thus far to move in & out of shares to & from cash), I am totally reliant on the market offering opportunities through volatility and irrational pricing in order to be able to make moves between shares (and always house builder shares - nothing else is under consideration for me). I appreciate that there is a concept of efficient market theory, i.e. that all shares are always perfectly priced based on whatever information is in the public domain - but I don't personally buy into that. Having said that, it's not to say that the market won't up its own game as time goes on, thereby reducing my opportunities! But part of the philosophy required for this, I feel, is to always be happy with the shares I'm in if the music stops at any time. In other words, my view is to not hold any particular share for even ten minutes if I wouldn't be happy to hold it for ten years - and having that as a filter does thin out a few...!