Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
"Strictly- I read a while back now that you were basically 60% BWY and 40% PSN- is that still the case?"
.........................
Johny,
I'm currently 2% cash, 35% Bellway, 32% Persimmon and 31% Redrow.
Three different shares ~ that's quite a big spread of holdings for me...! :-)
Strictly
Johny,
I've got one or two people like you on our private blog about house builder shares....
Senior moment spotters...
My senior moments, I mean, as I am prone to them…
So, well done for spotting that ~ my error was actually a typo, as it should have been £2,390m less £675m puff, gives £1,715m tangible assets, which divided by 228.3m shares does equal my figure given of 751.2p BVPS for 2021.
It was just a c.ckup copying the starting figure from my spreadsheet...
As an aside, though, I do have to say that I am seriously impressed with Greg Fitzgerald, the big cheese at Vistry….
He seems to have taken two inmates of Battersea Dogs’ Home ~ that is, Vistry & Galliford’s house building arm ~ mated them together, and then convinced the market that he’s come up with a Crufts winner as the progeny…!
Early on in our blog, I wrote a post entitled “Profit & loss accounts can be a work of fiction, so rely more upon balance sheets”, and that’s what this is all about, really….
I mean, Greg said, upon the blowing of the recent Vistry full time whistle, that their return on capital employed for 2022 was 28.6%.
Well, he might as well have said that he was hung like a stallion…
Because what both of those comments would have in common is that neither are demonstrated in the balance sheet…
Strictly
Crossley,
The SB blog is the place to go ~ I don't want to reinvent the wheel here.... :-)
As it happens, the "Persimmon" & "Persimmon Chapter 2" posts, from last November & January respectively, have the information you're asking for from me here....
Strictly
Mike,
If you're a regular reader of the Telegraph online ~ as I am ~ you'll no doubt already be aware that Melissa Lawford, the author of the piece you've provided a link for, seems to have been put on this earth to deliver our daily dose of property market doom & gloom....
While I appreciate that even stopped clocks are correct twice a day, I have read enough of her stuff not to put too much store by what she writes....
Strictly
Karv,
You make a good & valid point about Persimmon’s likely increasing level of stock in terms of carrying on building even if they aren’t all selling straight off…
This chimes with what was revealed in the webcast of the recent Persimmon scribblers’ post-presentation love-in…
While the formal presentation was rather dull & downbeat, the impression I had from the webcast was that the management were doing a kitchen sink job with the figures & the presentation to get all the likely perceived downside into the past rather than carry it forward like a millstone into the future…?
Whereas, it seemed to me that they were actually feeling somewhat more positive about prospects as from 2024 than they’d formally described, and this seeped out as they were being pushed by analysts’ questions…
I compared thoughts on this within my investing circle, and I wasn’t alone in that impression.
And selling houses ex-stock is a somewhat quicker throughput than just selling, via a showhouse, a property that has yet to be built ~ which surely allows for a quicker uplift in turnover, come a shift in the market in due course, sooner or later, than might otherwise be the case….?
And, as ever, the underlying fundamentals of the industry remain that there are not enough houses being built to keep pace with population growth…
In the end, apart from a very small percentage of the population still sadly living rough in this day & age, we ain’t cave dwellers, and peeps do need a roof over their heads ~ and that bald underlying reality surely has to make its presence felt sooner or later…?
And I think we have both come to the view that Persimmon are intending to position themselves well for that…?
Along with that, Persimmon have been best-in-show for quite a number of years in terms of profitability ~ even if, up to now, they’ve arguably spaffed too much of it in dividend at the cost of growth ~ and there’s been no indication that I have seen that suggests they are losing that margin advantage…?
And so I would say that the likelihood that they now seem to have changed course on future dividend policy is the main reason that I’m now heavily invested Persimmon shares…
Whether or not that turns out to have been a good call, well ~ I guess I’ll just have to see…?
Strictly
Laura,
You're looking at forward declared dividend but past yield ~ about which there has been much discussion, both here and on Persimmon's website... :-)
60p div it is, though...
Strictly
Eccles04
I saw that in the Telegraph and checked on the Nationwide's site ~ as that's where the numbers come from...
The 3% is for year to date ~ for March it was just 0.8%.
But then, that doesn't really make for much of a headline, does it....?
Strictly
PS.
Newboots,
I obviously don’t know whether this issue interests you sufficiently to want to look a bit closer but, in case it does or if it interests anyone else reading this, here are my numbers for Vistry.
2021 balance sheet value = £2,790m less £675m intangibles = £1,715m tangible equity divided by 228.3m shares in issue = BVPS 751.2p
2022 balance sheet value £3,250m less £1,261m intangibles = £1,989m tangible equity divided by 347.2m shares in issue = BVPS 572.9p.
572.9p – 751.2p = minus (178.3p) + 63p divs paid in the year = tangible loss per share of (115.3p).
By my reckoning, assuming I haven’t had a senior moment with the above numbers, this equates to a negative ROE for 2022 of minus (15.3%).
So, while I can see that you most likely took your ROCE figure of 28.6% straight from Vistry’s report, the big question for me is: How did THEY come up with that figure..?
And a final point here.
In my experience, you can pretty much ignore P&L accounts ~ as it is from the balance sheet, armed with also knowing the number of shares in issue and the dividend paid during the year, that one can obtain the reality check on the numbers reported by the companies.
As I have hopefully shown above?
And, based on many years of extracting these vital statistics for the house builders that I track, I can tell you that Bellway has always played with a very straight bat for forty years ~ whereas I can’t say the same about all the other house builders…!
With the reality check EPS, one can then also obtain the reality check price earnings ratio, price to book, etc.
As I said in the previous comment, the only thing that makes this tricky is a rights issue…
But then, on the whole, companies only instigate rights issues when they’ve c.cked up ~ see Taylor Wimps, Barratt & Redrow due to the credit crunch and, since then, Galliford ~ whom, it seems to me, were baffled by their ownbullsh.t with the mythical numbers they were putting out.
At the end of the day, Newboots, I guess we all pays our money and takes our choice, and if you have a buy & hold plan then that may well suffice..?
However, I am constantly watching for perceived value gaps in order to trade between the house builders, so for that to work I need to be right more than I am wrong.
Since the start of my tracking performance accurately, in 2013, I reckon I’ve added about 6% extra gain a year on average (outside of swerving covid) ~ so, for me, it’s very much worth doing.
Strictly
Newboots,
The issue with ROCE for me, as an investor, is that it doesn’t fit in with following the progress made by an individual share, adjusted for dividend, as does ROE.
For me, this is what 23 years in this game has distilled down to…
The only thing that messes that up is a rights issue ~ everything else it can take on the chin unaffected.
I do recall having a similar conversation some years back on the Redrow chat with an investor going by the moniker of Josh95, though I also recall making no headway with him on it and, in fact, he was rather dismissive of my take on this…!
As I remember, he was an accountant, and he was also a big fan of Crest back then because he rated their ROCE, whereas I regard them as being just another underperforming house builder…
They are another company whom I regard as currently being well out of whack in relative value terms these days so I haven’t owned any for a while (I move between different house builder shares, pursuing perceived best value, while remaining fully invested ~ except for having largely swerved the recent covid iceberg)
Anyway, I do take leverage into account by taking note of total liabilities as a percentage of tangible balance sheet, so as to be able to essentially swerve house builders with weak balance sheets ~ having learned that particular lesson the hard way, i.e. expensively, in the credit crunch with Barratt due to their high borrowings at the time incurred through having splashed out for Wilson Bowden…
It might be worth considering what I said above ~ I mean, about being able to incorporate ROE into the progress of a single share and which, as a by-product, provides for reality check calculations for EPS…
Because, IMO, declared EPS numbers are often mythical ~ Galliford was prone to that, and so earned the nickname Vicky Pollard within our investing circle.
No doubt each has their own metrics that work for them, but I have considered ROCE in the past and then discarded it.
But if you agree with me that Vistry’s tangible BVPS is the same now as it was ten years ago, then all that they have earned over that time has been paid in dividend.
And that’s an average of 47.3p a year…
Which really ain’t much..!
The other thing I suggest is perhaps pull up an FT.com comparison share price graph for Bellway and Vistry since their pre-credit crunch highs… it’s very clear then that Bellway has well outperformed Vistry and that’s before any price hit to reduce PBV on Vistry’s part…
Anyway ~ good to have an exchange of views about this stuff..!
Strictly
Muktass,
Yes, you are correct in that it's been mainly the two takeovers that have kiboshed shareholder value...
However, pre-credit crunch, it was, relatively, still ongoing death by a thousand cuts....
From 1997 to 2016, Bellway's ROE averaged 16.9% compared to Bovis's 11.9%.
The upshot of that was, with similar dividend payout policies through that time, Bellway went from a BVPS of 183p to 1,522p, whereas Bovis/Vistry/Battersea started slightly higher at a BVPS of 185p but finished the period with half as much at 780p.
I put my hand up to say that, for a while, I was a past sinner in that I have held Bovis shares back in the day....
But that was while I was very much still learning the game.... that, of course, is a lifetime's journey, but I hope I've made some progress at least, over the years....?
While I'm giving Vistry some stick here, a couple more things to perhaps consider....?
Their total liabilities as a percentage of tangible net equity are now 139%....
I regard this as risky if the economy goes seriously Pete Tong ~ just look at the mess Inland are in with a three figure percentage liabilities ratio.
This compares to Bellway’s 45%….
Vistry’s pre credit crunch high for tangible BVPS was 596p. Now it’s 573p, i.e. 4% less.
This compares with Bellway’s 934p to 2,880p, more than 200% up.
And Bovis/Vistry’s pre-credit crunch share price high was 1,082p, whereas now it’s 733p.
But that’s on a PBV of over 1.3….
If you took it down to Bellway’s 0.73 PBV to equalise it, the share price would then be 408p.
In other words, a share price loss over 16 years of over 60%.
Okay ~ that was three things…
I’m not trying to tell anyone where to invest ~ or not as the case may be….
But surely, for anyone with serious money in this game, it’s worth doing some serious number crunching…?
After all, I’m only working with the substance here, not surmise…
Strictly
I don't suppose any Vistry aficionados who may be reading this will be much pleased to have this presented so starkly, but I've just checked the past decade's performance for them against Bellway now we have the latest figures on both companies....
From the end of 2012 to the end of 2022, Bellway increased their tangible book value per share virtually threefold, from 930p to 2,727p.
Whereas, Vistry ~ or Battersea, as it is affectionately known as in our investing circle ~ increased their tangible book value per share by virtually diddly over the same time, from 567p to 573p.
Yet, weirdly, despite their underlying absolutely p.ss poor performance, one has to pay a whopping 1.31 PBV on tangible assets for Vistry but only 0.71 for Bellway…
If this doesn’t blow efficient market theory right out of the water then I really don’t know what does…?
Furthermore, US investors are apparently pushing to give Vistry’s boss, Greg Fitzgerald, a bonus of £60 million ~ which has echoes of King Jeff’s notorious reign at Persimmon…
Really…?!
Nice work if he can get it, I guess…?
Strictly
Quickdip,
There are a couple of characteristics that have made Persimmon stand out from the companies that Crossley has referenced ~ namely Redrow, Barratt & Bellway.
The first is their far superior return on equity ~ the five and ten year averages for Persimmon are 22.5% & 23.9% respectively whereas, for the others, they are:
Redrow 15.8% & 17.6%
Bellway 14.5% & 16.8%
Barratt 14.5% & 14.8%
So, just considering this alone, it is surely rational that Persimmon still retain a higher PBV given firstly the additional freeboard that this provides through whatever sh.tstorm we may or may not be heading into, and secondly once the market recovers it seems likely they’ll retain that profitability advantage given that they have a forty year track record in that regard.
The other characteristic ~ which I have mentioned here in previous comments ~ is that since the start of the rule of the now departed King Jeff, Persimmon have spaffed most of their earnings in dividends.
This was, no doubt, because in doing so they appealed to a certain type of investor.
They have now reset that ~ sensibly, in my view ~ and have stated that they are intending paying out a more balanced dividend ratio to provide for more future growth.
Persimmon’s share price might have fallen further than the others ~ down over 60% from the top as compared to around 50% for the other three ~ but it did have so far to fall having reached the heady height of more than 3.0 x book value, which historically is pretty much otherwise unheard of for a house builder share.
Strictly
Crossley,
Thanks for the heads-up on that.... I just googled for a link, in case anyone else is interested, and here it is below:
https://www.housingtoday.co.uk/news/barratt-to-open-45m-timber-frame-factory/5122111.article
That now makes for all three FTSE100 boys in the game of timber frames, as Persimmon have had this on the go for some while and recently joined by Taylor Wimps…
And now Barratt, it seems…
Persimmon, being the folk with the experience, have said that producing their own off-site timber frames can reduce build time by around 8 weeks (at least, that’s what I recall they’ve said..?) which seems a pretty big deal to me…
Separately, I didn’t hear back from you re the blog… if you’ve had a change of heart about that then no worries, but if you’ve had difficulty signing up for it then just let me know…?
Strictly
Karv,
They gave more details on future dividend policy in the Q&A session with the scribblers on the day of the full time whistle...
Here's a link, though you'll have to give them name, rank & serial number in order to access it....
IMO, worth the effort of watching, though, and especially if you have skin in the game of Persimmon...
https://www.persimmonhomes.com/corporate/investors/results-reports-and-presentations/2023/
Strictly
Mike,
Just to make the point, I have no view on where the share price may, or may not, go, this year or next, for any of the house builders...?
And nor do I need to take a view on that….
What DOES interest me, though, is where the perceived best value is relative to that of other house builders at any time ~ in particular, that of Bellway and Redrow, as the rest are currently way off my radar in terms of being in the game.
And part of that is how the companies themselves are doing in terms of underlying performance…
Which is why I did listen pretty carefully to the Persimmon webcast…. twice…
Well, I do have to admit that I did nod off for a while on the second viewing…
There’s only so much diligence that you can bring to this..! :-)
Strictly
It's been interesting to surmise what a popular fellow the Captain must be, based on many of the vast number of comments here since Persimmon's full time whistle...
Captain Hindsight, I mean...
I mean, unless you happen to be drinking buddies with him, how is it possible to comment with so much certainty & conviction about how events will unfold from here and the impact that they, in turn, may or may not have on the future profitability, or otherwise, of Persimmon, et al...?
And it seems to me that the potential collateral damage of all this expressed certainty is introducing a degree of toxicity here in some of the comments that may subsequently endure…?
This has been refreshingly absent thus far from this particular board ~ and that, plus the general more detailed level of discussion that can be found on the PSN chat from time to time is largely what motivates me to add my three halfpence-worth occasionally….
So, for myself, I do hope that this discussion board doesn’t slide…
One recommendation I would make is to go on to the Persimmon website, click on the link for the webcast for the 2022 results (or use the link below), and sacrifice an hour and a half of your life to watching it….
https://edge.media-server.com/mmc/p/3mp5qs8q
The most useful element of it, IMO, is the post presentation question & answers session with the assembled scribblers…
Because it was an actual meeting, it worked noticeably better than just a virtual one by video link or phone conversation.
I would say this was a bit like when everyone ~ including the players themselves ~ came to really appreciate the live crowd at a big football match once more in televised broadcasts after all the covid era matches that had been played with phoney crowd noise piped into the background…
Anyway, though the presentation itself was a bit dry ~ it seemed to me that Dean Finch might fall asleep on his feet reading it all through out loud ~ he & finance head honcho Jason Windsor became far more engaged with the questions being asked, and there was somewhat more nuance etc. that came out of that…
My overall impression ~ and one that is shared by others that I’ve discussed it with since ~ is that the official presentation was one of caution but that, actually, they are a lot more upbeat about prospects than that so are just playing it safe insofar as what they’re committing to print…
Anyway if, like me, you have skin in the game (and I’ve just increased my Persimmon holding to 40% of portfolio by selling some of my Redrow and moving that money across…), I would strongly recommend that you watch the webcast…
Strictly
Londoner,
And King Jeff was master of that particular game...
Until he got the heave-ho, of course... :-)
Strictly
Today's full time whistle from Persimmon, and the consequential reaction from Mr Market, brings to mind the words of William Ralph Inge…
“Worry is interest paid on trouble, before it comes due”
Just consider this…
Persimmon have made an average return on equity for the past few years of 21.7%.
This is more than 40% better than the decades long term average ROE for house builders of around 15%, let alone how it’s been for the past three years having to contend with covid, cladding & Gove.
The next nearest for the past three years of the companies that I monitor is Taylor Wimps, on an average of 13% ~ which makes Persimmon nearly 70% higher.
And, for 2022 (but allowing that I did over-reserve the start of year write down for the cladding as I hadn’t offset the tax on the reserve saved per share, though I can’t be a.sed to go back and correct it just for this comment), I have an ROE for Persimmon of 26.5%.
No other house builder I follow has ever matched that in any year in the past decade, though Persimmon themselves have had even higher performing years (just that, during the era of King Jeff, they spaffed most of it on dividends).
So, what we’re looking here at is interest on trouble before it comes due…
‘Cos it aint actually happened yet…
It seems to me that, in their statement, Persimmon are really looking this in the eye and not blinking, yet the market is giving them a kicking today for expressing such a seemingly brutal and realistic outlook….
Kitchen sinking it again, I reckon, as with today’s dividend announcement..?
They’ve suggested that if current conditions continue, they could be looking at 13% off their gross margin…
But given that they’re starting with around a 31% gross margin, that still leaves 18% in the pot ~ that’s better than a shambles like Crest makes in a good year..!
And fellow FTSE100 boys, Taylor Wimps & Barratt, are on gross margins of 20% & 23% respectively, so 13% off those would leave only 7% & 10% respectively.
And none of this has come to pass yet ~ so we’re in the hands of that wonderful oxymoron, “The foreseeable future”…
Yeah, right..!
Strictly
Demos,
You just beat me to it in terms of saying something similar…
I’d had them down for paying out half of last year’s earnings which, on scribblers’ forecasts, was around a 120p div paid in 2023 and then half of earnings going forward so, based again on the scribblers, would be around 60p div paid in 2024.
Those were my dividend reserves, anyway….
However, it seems to me that they have kitchen-sinked this ~ by which I mean they’ve not only cut back the payout ratio they’ve also largely based the dividend amount on a cautious outlook for this year as a defensive measure.
They have stated they’re looking at maintaining or increasing the dividend going forward from here, and, as discussed here ~ which seems to be a rather popular share chat board today! ~ they’re also looking at an interim dividend to be paid in the second half.
So, maybe that’ll be 20p or 30p, and I’m reserving for 30p at the moment so that’s a prospective total div payout I’m reserving for during the year of 2023 of 90p.
So, to borrow from Meatloaf, “You took the words right out of my mouth” (though let’s swerve the follow up line of that song, shall we…!).
My take on this is that Persimmon have come impressively far as a company since the days of King Jeff (by which I mean, his tumescent dividend policy that was no doubt designed to excite the sort of investor who didn’t bother to run the impact of the numbers through a spreadsheet and, as part of that, get his mega bonus voted through without so much as a murmur… he might be a greedy toe-rag, but you have to hand it to him all the same, don’t you..?) and, up to this morning, had made themselves more attractive to me as an investment prospect ~ which is why I am holding their shares.
As of this morning, they have now improved that attractiveness further… it seems that Persimmon are becoming almost Bellway-like in their sensible caution.
I appreciate that, at the moment, Mr Market sees things differently, but, as ever, he can go and do one as far as I’m concerned…
Strictly
Banbury,
Redrow is a June year end, and Bellway is July...
But, in the context of turnover holding up, it's surely a good thing as it's another month further forward...
Yes ~ Wednesday 1st is looking to be a significant day ~ coming from the horse's mouth, rather than just from the assembled pundits & naysayers...
For better or for worse, well, I guess we'll all have to wait and see...?
But I anticipate a comment or two here that day... :-)
Strictly