Member Info for strictlybricks

“Seeing as this is a partnership deal, i.e. building council/social housing the margins are about 10% compared to say 20% for a historic privately sold house.”

…………………………….

Fin, I fear you may be right here…?

That’s “may be” as opposed to “are” because, like most folk here I suspect, I don’t have a crystal ball and I don’t happen to drink with that old b.stard Captain Hindsight.

But, as I’ve said on here before, I was solely invested in house builder shares for just over twenty years (hence the moniker) until early this year when I shifted nearly ninety percent of holdings into the insurance boys.

The Captain has shown me my market timing wasn’t great, but I can’t odds that.

What I can see ~ and I’m using Bellway here as it’s my benchmark share ~ is three years’ scribbler forecasts for a return on equity of an average of around 5%, compared to four times that & more a few years ago when the builders were in their pomp.

And, IMV, even at the current suppressed PBVs, house builders are overpriced based on the forecast ROEs if the scribblers are more or less right and if those low returns continue to endure…?

In other words, are we maybe, just maybe, looking at the end of the golden age of house builders in terms of full fat ROEs..?

I am certainly not calling it, and I hope I am proved to be overly concerned & therefore wrong…?

However, for myself, I HAVE effectively called “pause” on most of my builder holdings ~ probably at least until such time as we’ve got through the 2024 results which are forecast to be the nadir of this era going forwards, and then hopefully seeing adjusted forecast EPS rising strongly thereafter…?

In the interim, I guess I just have to hope that the market doesn’t continue to see it so differently to me…? ☹

Strictly

"Ahh, but Strictly, have you managed a 20% pa return Buffett/Munger gained over 50 years who looked out of the windscreen by looking out of the rear view mirror? "

Lending,

Unfortunately not though, from the start at the end of March 2000 to date, I have managed an average 17.6% a year ~ which I am more than happy with regardless of how much better some here may have done...?

If I was measuring up to the end of 2021, it was average 20% at that point, but 2022 was a bit of a nightmare share performance-wise for me ~ a loss of 37.2% ~ and I'm only now just back to where I was at the end of 2021.

And my feeling is that the world has changed, and not for the better, and that if I can average just 10% a year from here then I reckon that's fine ~ which is why I'm currently almost completely invested in the big insurance boys, because the projected next three years for Bellway et al is pants and, other than Nostradamus or Captain Hindsight, who could possibly have much idea beyond that...?

But Buffett has been at it for around 80 years..... averaging around 20% a year.... which is why he is one of the richest people on the planet.... the annoying thing about him is that he was always certain he was going to be very wealthy...

All the same, do bear in mind that he loves to quote his long term average performance figure...

But that was then, the glory days, not now....

Last time I checked ~ admittedly a year or two ago now ~ for his most recent twenty years Berkshire’s only averaged about nine percent a year...

But, being the very smart chap that he is, he doesn't make too big a deal about that for some reason...? :-)

Strictly

"Read my post again Strictly. I was not supporting the use of DCFs for equities - quite the opposite. As such, we appear to be in violent agreement I'd say."

Matt,

I did get that.... I was kinda backing up your point of view, albeit in my usual rather waffly way... :-)

Strictly

Matt,

Warren Buffett used to bang on about discounted cash flows...

But his erstwhile partner, now sadly deceased, Charlie Munger, said about him "I've never seen him do one...!"

So that sounds more like the truth of it...? :-)

Government bonds are one thing, but companies' forward profits years ahead...?

Really...?

"Foreseeable future" being probably the greatest oxymoron there is, how is a discounted cash flow for a business much better than a stab in the dark....?

I've spent the past twenty four years earning a decent crust from investing, with no serious other income, almost entirely based upon looking in a clear rear view mirror rather than trying peer out through a very foggy windscreen...

That notion has never gained much traction here, but it's worked well enough for me and I'm probably now too long in the tooth to change...?

it is said of economists, but I'm sure the same equally applies to security analysts, thet if you take every one of them who ever lived and lay them out in a line, head to toe, they still wouldn't reach a consensus...

Strictly

Monkey,

I'm currently 10% Bellway and that's it for builders....

I'm waiting out what are currently three years to come of p.ss poor return on equity (as far as the scribblers' forecasts are concerned) to see if house builder good times are coming back or whether they've had forty great years (of which I had twenty years since I had my epiphany about builder shares in 2003) and now that era has passed…?

There is much discussion here about the prospective share price tomorrow, next week, or next year, but my interest in the FTSE100 insurance boys ~ I mean LGEN, MNG & PHNX ~ is almost entirely concerned around the degree to which the dividend is safe and the degree to which that may grow each year…?

If it’s very safe, these shares are almost certainly underpriced, in my view.

Whereas, if the scribblers are right about the next three years’ earnings for builders, and with more uncertainty to come beyond that ~ with or without the current bunch of nutters in charge of the country ~ I would say that even at their current somewhat suppressed share prices, the house builders may still be overpriced to some degree…?

Time will no doubt tell…?

I guess that most if not all readers here are over the age of eighteen, and so they are also old enough to fight & die for their country, and each has to make their own mind up about these things…

But, for me, it’s why the other 90% of my investment capital is currently in the insurance boys…

However, I remain a tart when it comes to being a seeker of best perceived value, and if I think that things have shifted relatively then I’m likely to shift with that…

Strictly

Since 1692, the Bank of England base rate has spent about half its time at 5% ~ including an entire century from the early 1700's to the early 1800's when it stayed bang on 5% and never shifted once during that time ~ and about half of the rest of the time returning back towards 5%, up or down, from whence it went....

So, wherever it may go from here, personally, I'm not holding my breath on the notion of it drifting too far off 5% for too long...

The past fifteen years or so of uber low interest rates until recently really has been a severe aberration when considered from the perspective of more than three centuries on record...

Of course, this may or may not mean anything for the future...?

But I remain mindful of what are considered to be the four most dangerous words in investing....

"It's different this time"

Strictly

First of all, I thought I'd open up a shiny new thread heading ~ particularly for those readers who are now edging towards the window ledge as a consequence of all the ISA/SIPP discussion... 😊

...................

"Even if the market price of the shares is decreasing, it doesn't follow that their value is decreasing. If something keeps paying me out an ever greater amount of money, then I would say that its value to me is rising, even if no one is willing to buy it off me at a fair price. Of course, it's open to question whether LGEN's dividend will keep rising over the long term. But I don't think you can assess the shares' _value_ without making some judgement about its future dividend prospects."

................

Tich,

Good to see that someone is at least attempting to open up a discussion about price vs value ~ as opposed to just speculating what the price may be doing at any point in the future….?

Consider a couple of points…

Firstly, “The foreseeable future” has to be just about the greatest oxymoron there is (okay, maybe rivalled by “A good lawyer”, but let’s not go there…. 😊).

The second is that, as a shareholder, the only thing you will get from the company is dividend….. that is your reward for being a shareholder as compared with wages for workers and profits for the self-employed.

Anything that comes, or goes, as a consequence of share price movements up or down comes from the market, not the company itself.

So a long term hold investor might see the same two components as would, say, a part owner of a private family business, as being the all-important aspects for themselves as an investor.

Those are: the amount of the dividend and the rate of increase of that dividend.

And that’s it ~ only complicated in LGEN’s case by virtue of a market price for the shares due to being a listed company, which gives rise to a dividend yield on that price, which gives rise to a comparative metric with other companies.

Together, of course with “How safe is it?”.

So, if you took a piece of advice from Warren Buffett, being “Our favourite holding period is forever” you could surely, like Buffett, let go of whatever the share price may be doing at any time except to being able to consider switching holdings when you perceive that the market is making you a better offer.

Which Buffett has a problem with, as he’s managing a humungous-sized investment pot… 😊

Strictly

"Let's use an annual growth rate of 15% (which is frankly unrealistic and if retirment is consistently making that over a sustained period then they're in the wrong job and one has to wonder why they'd hang around with us losers, anyhows...)"

....................................

Meco,

Some detailed posts from you here ~ so thanks for that....

Mind you, my major concern with pensions remains further government interference.... Mathew, 7, 16, and the nature of things, and all that...

B.stards... 😊

However, as it happens, the point of my reply here is to give you a heads-up that I'm intending discussing "Passage Planning rates" in the next SB blog post, so hopefully you're still looking at that from time to time...?

Also, as it happens, my previous passage planning rate, for many years, was 15% a year and that has proved to be cautiously valid when averaged out...

But I don't see things like that from here on...

And the purpose of the next blog post is to discuss the reasons why ~ and hopefully open up some comment...

So you might like to have some input to that, in due course...?

And at least it keeps it off air as far as this share chat goes ~ so hopefully we can swerve being scolded here for discussing non-LGEN stuff at length...? 😊

Strictly

Putting tax considerations to one side (as they do very much vary according to individual circumstances ~ so a general comment here on them is about as much use as an ashtray on a motorbike...), do allow that the big advantage of an ISA over a SIPP is that you can take the money out whenever you want and spend it....

And the big disadvantage of an ISA over a SIPP is that you can take the money out whenever you want and spend it....

So, if you’re not yet of an age when you can draw on a pension (and I personally reached that point many years ago…) then it does help to know yourself and whether you can trust yourself to save…

Through thick & thin ~ in the same way as you are effectively forced to do with a pension before retirement age..

Otherwise… life happens…

And the money can be gone ~ the Road to Hell being paved with good intentions, and all that…

I’ve seen many cases of that… 😊

However, the other big plus of an ISA, in my view, is that, thus far, governments have never messed with them….

Whereas no government in recent decades has been able to resist continually tinkering with pensions.

And "tinkering" is more polite than the word I'd prefer to use...

That’s not to say it won’t happen from here ~ especially with the current mob that we have so wisely just voted into power ~ but the track record does very much stand in favour of ISAs.

No predictions of any sort implied here, mind… 😊

Strictly

"The results today were dreadful and disingenuous"

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James,

And it's probably also worth bearing in mind that Crest's book value per share hasn't made any progress since 2017...

They seem to have taken over Galliford's mantle of being the Vicky Pollard of the sector....? :-)

Strictly

Crossley,

I've now put that post up on the blog ~ so you can check out about that share price you referenced now.... :-)

Strictly

"£2.44 @ 5.5% = 13.4p divided?

Just wandered how you’d arrived at 5.5%"

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Crossley, wait for the blog post.... that should explain things... :-)

Strictly

Crossley,

"did you use 13.4p from the LGen website, or alternative data (11.8p dividend max, etc) and how did you come to the SP value of £2.44 please if the former? "

.....................

I used the LGEN website for the dividends.

I'm not following you re the £2.44 reference..?

Strictly

Londoner,

You're not on the SB blog ~ so I'll offer you a response here...

Because I am unable to calculate a meaningful book value per share for the insurance boys, LGEN, MNG & PHNX, in the same way that I consider that I can for the house builders based on twenty plus years of experience, I am making a working assumption that the share price, give or take, is the same as the BVPS.

Cheating… kidding myself…?

Maybe, but it then allows me to treat dividend yield plus dividend growth as a ball park return on equity, which then provides for me to make comparison of the insurance boys with Bellway which is my benchmark house builder share.

The general sense I have is that overall, the insurance boys may be looking at div increases of around 2.5% with maybe, or maybe not come the 12th, more for LGEN….?

So, my Strictly Bricks ballpark for the insurance boys’ ROE is that of around 12.5% (this is very much for my own use, BTW, I’m not expecting anyone else to buy into the concept so nobody needs to be rude about it…! 😊 ).

This compares sharply with the scribblers’ average forecast ROE for Bellway for the next 3 years of only 5.5% a year.

Not only that, the direction of EPS forecasts for Bellway has been downwards for the past two and a half years and counting.

On 11/11/21 it was forecast EPS for 2024 of 424p and now it is 119p.

So, I am sitting holding mostly the insurance boys rather than the house builders ~ which constitute my natural home ~ waiting for two things…

Firstly, that the forecast EPS figures for Bellway, et al, have changed trend and are confidently heading back upwards.

And secondly that they are looking to recover well & going up to double digit return on equity, if not back to the average sixteen percent which is their historical long term average over forty years.

Because, if they seem to be consigned from here to only continue to make mid-single digit returns, then even a PBV of 1.0 might be a bit toppy for the share price…?

And I never thought I’d be saying that about Ghost Dog ~ aka Bellway…! ☹

Strictly

Crossley (& Meco),

If you want to respond on the blog, rather than here, then IMO that is likely to lead to a more useful discussion that will hopefully also bring one or two others in who are likely not reading LSE LGEN chat here....

And if you've picked up on my blog comment earlier today, you'll be aware that I've got the next post written ~ which is all about this ~ I'm just waiting on another couple of SWR results first before putting it through....

So, if you just hold on a day or so until that post is out there then that would be the way to go I reckon... :-)

Strictly

PS

Senior moment on my part....

Where I wrote:

"...I have switched my prime metric to dividend yield from having been book value per share."

That should have been price to book value.

Strictly

Meco,

As you are aware, via discussion we’ve had separately, I recently put together a graph comprising LGEN’s share price overlaid with a set of “tramlines” representing different rates of dividend yield.

This is a variation of a theme I used with house builder shares twenty or so years ago to perceive the inherent undervaluation at the time of many of that sector’s shares.

A picture paints a thousand words, and all that ~ and which proved so true in that situation and hopefully will do in this….?

It’s clear to see that, for around twelve years between 2003 and 2015 ~ apart from a short incontinence underpants period around the end of 2008 when the share price fell so far as to take the yield right up to around 10% ~ the share price has happily toodled along such as to maintain a dividend yield of pretty much between 6% & 8%, peaking in 2015 on a yield of 5.5%.

This may seem quite volatile to some but, compared to the movement of house builder share prices ~ which is what I had been used to for two decades ~ it’s a “That’s not a knife!” situation.

However, since the share price about peaking in 2015, it has more or less drifted sideways.

But in doing so it has far from kept up with dividends ~ with the upshot being that the yield is currently around 8.5%.

And recently up from 9.5%.

Which, to me, begs a couple of questions:

“Has the underlying performance of LGEN become steadily weaker over the past nine years in a way that may be obvious to many but not to a simple soul like me?”

“Or is the market failing to give full recognition to the value of LGEN and their peers MNG & PHNX…?”

If the latter then, for me, this is déjà vu to some extent, as it is very similar to what was going on for the likes of Wilson Bowden (before bought by Barratt), Bellway, et al, back in the day in the early 2000s…

And, once I’d uncovered that, I moved everything out of all other sectors and became 100% invested purely in house builder shares, and remained so (with the odd partial aberration in between) until this year, when I have now moved mostly, though not fully, across to these insurance boys.

The difference between the arcane nature (to me, at any rate) of LGEN & co’s balance sheets compared to those of the house builders meaning I have switched my prime metric to dividend yield from having been book value per share.

So, I’ve put this up as a potential discussion item, while hopefully not inviting sniping comments from those who may look at these things through a somewhat different lens…

We all pay our money and make our choice, after all… 😊

Strictly

PPS

A third typo noticed ~ I'm obviously not firing on all four this morning ~ near the botton it should have said 2026, not 2006...

Strictly

PS

There were a couple of typos in my previous comment...

That should have said "shudder" not "shudde"

And it should have been "series of headwinds" not "serious of headwinds".

Even though they have been pretty serious...!

Strictly

“Strictly, even using your calculations it's still less than the total return from a basic international fund, most of my funds have returned around 80% in the last 5 years, i'm not suggesting anyone sells up their shares, but i would recommend to anyone to add some funds into their portfolio, as well as some good divi shares like lgen/aviva/mng/psn etc.”

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Robleo,

I appreciate you’re likely making that comment in my perceived best interests and, if so, thanks for your concern.

However, I have been in this investing malarkey a long time now, and that includes having called it well wrong, & with leveraged money, in 2007/8 to the extent that I had to sell up and buy a smaller house rather than sell shares at seriously depressed prices.

In 2008, it would have been the equivalent of flogging fivers for a quid.

However, from the start of 2009 to date, it has been much different, as from that point to date I have compounded at an average annual 25% ~ which, as you might imagine if you’re familiar with how that goes, was somewhat beyond my expectations.

...! :-)

Within that, I have been prepared to be invested 100% in a single share on occasion ~ always in house builders ~ and I appreciate from previous comments that this would likely make you shudde...?

However, within the above, since the start of 2018, returns have been much thinner, and I have only compounded annually at 7.5%, and I have very recently largely sidestepped house builder shares while waiting to see how they come through a seemingly ongoing serious of headwinds.

I’m happy to use the scribblers' projections for EPS for this and they have reduced Bellway’s EPS forecast for 2024 by nearly three quarters since 11/11/21 ~ when it was 422p ~ compared to currently being 119p.

Even by 2006, the forecast BWY EPS is only currently 208p, an ROE equivalent of only 7% compared to their long term average ROE of around 16%.

This is not good, IMO.

Hence currently I'm holding mostly LGEN, PHNX & MNG as well as some BWY.

Strictly