Member Info for TakingMyTime

@nick 'What you say TakingMyTime is out of kilter with the current opinion polls on remain/leave which show 49% for remain and 44% for leave. '

Several things, nick.
1. Not sure I believe the polls. 'Shy Tory' effect. It's probably double magnitude with Brexit given all the bitterness over this. I mostly believed the polls last time and stayed heavily in GBP assets, assuming they would go after Brexit was defeated. Been kicking myself ever since that I didn't put more in USD before the bottom fell out for the pound. Polls underestimated Brexit support before and probably do now.
2. Even if the polls are right, it doesn't change what I said. Over 400 constituencies voted Leave. Remain is heavily concentrated in probably 125-150 constituencies. Tory/Farage alliance would only need to win 320 plus DUP. Has it shifted enough to turn 325 constituencies into Remain? I doubt it. 300, maybe, at the outside.
3. Even if a majority of constituencies would now vote Remain, the Remain vote is going to be divided in many of those constituencies. If there's a pro-Brexit alliance, their vote wouldn't be divided.

In a general election, if there's a BoJo/Farage alliance, the likelihood is they'd win easily, unless the Remain parties can agree an alliance, too. Even then, they might, simply because of the constituency breakdown. It isn't a referendum, it's 650 first past the post individual elections.

If I believed BoJo were finished or was likely to lose an election, I'd definitely change my investing strategy. For one, I'd get out of Persimmon and other housebuilders because I think Corbyn would destroy them with all kinds of punitive tax and regulations.

I don't think that's the case. I don't think Labour thinks so, either, or they'd have agreed to that election as soon as possible. They know there is a serious risk they lose even without a Farage alliance. Political boundaries are shifting rapidly.

@Nige. He's done a lot of damage but I don't think he's finished. And I think the Farage alliance is unacceptable to the old Con Party that he's already offended. He's going for a different constituency -- and there are a lot of voters in that constituency. We'll see. Count BoJo out at your peril, I'm afraid.

From my old chess coach, never assume the other guy has no options until he resigns or is checkmated. Always look for what he might do that you aren't expecting.

I wouldn't bet on him resigning, and I don't think he's done. Never underestimate the other guy. Always assume he's got something else he's going to try -- the worst that can happen is you are pleasantly surprised.

If they won't agree an election before 31/10, Corbyn is dead in the northern constituencies, and the Lib Dems are eating heavily into Labour's support elsewhere. Corbyn has to agree that election, I think. Otherwise he'll be painted as dancing to Tony B-Liar's tune. Corbyn's been demanding an election all year, and now he won't do it because Tony Blair says not to. He wants to go to the people until he can and then he won't. Etc, etc. The attack lines write themselves.

I said some time ago we were likely to see a BoJo-Farage alliance in an election. That strikes me as very likely now. If it happens, they'll win, too, because almost 2/3 of constituencies voted leave, and the alliance would win most of those. It might even win some of the remain constituencies, because some remainers are fed up and just want it over with, and don't want another even more divisive referendum, and because the remain vote will split between Labour, LD, and Green. They might even win some in Scotland and Wales because the Nationalists will split the vote, too. I don't see a really effective alliance between the remain parties and Labour in a national election. I could be wrong, of course.

Farage's price for an alliance will be either no-deal or a very limited deal -- ex pat rights, a 6 month transition whilst hammering out a trade deal, etc, a few other key points. BoJo will be ready to agree to that, he now has no reason to cater to any Remainers who won't follow his lead entirely. It's open warfare with almost all of them, and in an alliance with Farage he'll beat them, too. Amber Rudd and Nicky Morgan suspect that, that's why they are still on board. They are probably the only Remainers now with any real influence with him at all.

If the election is before the end of October, Labour just might have a remote chance. If they force it into November, Corbyn is finished. If it is before, BoJo will ride it out until after the election.

If it is November, and there's a Farage alliance, he'll probably send that letter. And he'll send another saying Britain will veto all EU business as long as they are in, and leave without a deal in January, so they might as well just do a deal now if they are going to, or if not, refuse the extension and get the no-deal pain over with. And EU leaders will be able to read the polls.

I think no-deal Brexit is the most likely outcome. It may not happen until January, but there will be an election before then, and the Remain vote in this country is concentrated in too few constituencies in the cities for it to go the way remainers want.

Anyone making investment decisions based on assuming no Brexit is making a mistake, IMO.

LOL.

My political crystal ball isn't working very well. It's gone absolutely blank.

I'm still sitting on my cash (which might be a mistake) but I agree with you gentlemen that BDEV looks very appealing right now. There was nothing in the results that would put me off at all. I still see the things I mentioned, and what chittybangbang posted. None of it changes my view.

Re: BDEV SP drop. A good question to which I'm not sure the answer. But I'll take a shot at it.

Revenue was down 2.3%, and below most forecasts.

Profit was up, but primarily because of an increased profit from joint ventures. Take that out and profit and revenue were both down. Perhaps those in the know think the joint venture profit isn't sustainable. If so, that would explain the drop in price, because if you take that JV profit out, these results weren't that good.

So, that might be one explanation, but I haven't dug into it enough to say if that's really it or if there's something else.

I suppose another factor might be that political news is making people think Brexit is going to be delayed or stopped, and they think the upside with the other builders is better if Brexit doesn't go through. So it may not actually be the BDEV results that are driving what we see, it may be political news. Because IMO BDEV hasn't been hit as hard by Brexit fears as some of the others.

I'm just speculating, I don't have anything solid to give you. Will try to look at the results in detail later and see if I can figure it out.

I have no interest in the charts. If global steel doesn't go into a bad down cycle, the dividend won't be slashed, and the charts are totally wrong.

If you think we're bound to have a long recession and your investment horizon won't outlive it, don't buy EVR. If you think we aren't going to have a recession, or you are willing to hold it for the long-term, it might be worth putting some money on it.

The charts can't tell you about a recession, or whether the company will make money and keep paying dividends. They only tell you about investor sentiment, which can change as quickly as a US/China trade deal, or a reasonable resolution to Brexit, or a war, or a 50 basis point cut by the Fed, or any number of positive or negative world events. They might be a decent guide for the next month or so, but EVR is unlikely to drop to 300 in that time, and there's no way charts could be a reasonable predictor of that.

Thanks for the leasehold news, Johnson. I consider it good news.

Sure, it might 'create pressure' to do the same for others, but that pressure was already there. What I hope they'll do is look at it on a case by case basis, and if they didn't communicate well, make it right.

A few of these makes it a lot harder for people like Brokenshire to go after PSN. Not that he matters much anymore, but there will always be politicians who play the game like he was.

@strictly
I do time the market on a macro scale, because I pay attention to politics, too.

I'm 80% invested right now because I'm in companies in which I believe, or in one or two cases, companies I wanted to play a gamble with. PSN is a hybrid, a gamble in which I believe. The risks are there, but I don't consider them significant compared to the upside.

But I have 20% of my equity funds in cash, and that's because I'm 'timing the market'. It's not because I'm trying to guess the lowest point in the market, it's because I have been paying attention to politics for a long time.

I don't think the Remainers will block Brexit. Corbyn actually wants Brexit, I'm sure -- he doesn't want the EU restricting some of the things he'd want to do if he gains power. He's just playing it for political purposes right now, and he would like a no-deal Brexit that could be blamed on the Tories. Then, he's thinking, he'll gain power as a result, and be completely unfettered by the EU to do whatever he wants. So the Remainers and Corbyn won't get a deal done to stop Brexit. They might force Johnson to request another extension but they won't stop it. And Johnson and the EU will fail to agree on an extension, in that case.

So, it's going to come down to no-deal or Johnson and the EU agreeing a deal. Since both are currently trying to call the other's bluff, I'm assuming no deal will be done, if one is done, before the last minute. That's when the EU usually agrees a deal, at the last minute, when the powers that be decide something is going to be a disaster and has to be done, they'll say, 'Enough posturing, now do a deal.' That's not going to happen before the last half of October.

Since no one knows that is going to happen, the later we go the more and more people will think it will be no deal, and the more companies likely to be badly affected by no-deal will be hit in their share price. I don't think builders will be badly affected by no-deal, but it is clear many market players do think so.

I'm not trying to find the absolute bottom of the market. But I do think early October is going to have some days when the news looks bad and the market drops, and when builders are lower than today. I'll be investing that extra 20% then, and probably half of it is going into builders.

I also expect the pound to drop even lower than today, in early October. If it does, I'll probably move all my US investments to the UK at that point in time, then move them back when the pound recovers some. Right now, the pound is a good value buy, but it might become an irresistible value before long. I like the US market but the dollar is overpriced relative to the pound right now, and it will probably get worse.

'And I first beheld the beauty of builders (as in an investment prospect, that is, not in any other way - honest guv!) in 2003, when I had something approaching a minor epiphany about them and their underlying long term fundamental value growth...'

My epiphany, sadly, just came in recent months. I'm still mostly in other sectors, but my holding in this one will grow significantly in October, I believe. Still just deciding where.

I don't much try to time the market, though. I'm doing it with this next buy. But usually I just look for value and when I find it, I buy.

Still dithering about which builder it will be, though. Not PSN, that's my only investment in builders right now, want to branch out. Still just deciding. Will know by October what I'm going to do, or at least what price levels will trigger certain actions.

Thanks for that, strictly. I'm guessing I've got a month to decide, I'll dig deeper. Am slow to buy without feeling like I really understand the market and the company. Think I've got a good feel for the market/sector, but not that company.

@Tony, I wholeheartedly agree.

@strictly, thank you very much for the analysis. I'll be honest -- I've never even considered Redrow. As I've mentioned on the TW board, I'm holding some cash for the pre-Brexit lows I expect in October, and was planning on upping my ante on builders. I don't have that much in builders right now and it seems a very good play at the moment. As you say, the market usually gets there in the end but it doesn't seem to be there right now....

I'd been leaning towards TW, maybe BDEV. Maybe I need to consider Redrow instead. I will investigate.

@WW 'Maybe the surprise is that LON and SE has shown good reliance considering it includes the expensive central London portfolio (average price over £1M).'
That was surprising. Thanks for the breakdown, BTW.

@Tom
'Yes TW had a small temporary reduction to their anticipated Operating profit but that was down to a situation out of TW's control and a lot of other builders suffered the same due to increase costs. My point was simply to TW's report that's all and not comparing that report to others.
Anyway TW have taken it on the chin and move on.'

You're right, of course. The reason comparing the report to others matters is because not everyone wants to be invested in this sector right now (due to Brexit, etc), and those who do want to will be comparing the different builders and deciding where to invest. These companies are competitors, not only for selling houses, but for investor funds. Brexit, etc, affects all of them and resolving it will benefit all of them. But the SP is going to be affected by comparisons between the companies.

TW got hit in their SP because the comparison, particularly on margin, looked bad for them compared to their competitors.

I'm still not in TW, though I am in PSN. I'm sitting on some cash which I intend to invest in early October. Nige thinks I should put it in BDEV, but right now I'm leaning towards TW. I'm not as bothered by the drop in margin as the market is. I do think that explains what we've seen on this share price.

Hi, Tom. Key point, very simply.

TW
"Operating profit* of £311.9 million (H1 2018: £344.3 million), reflecting higher build costs and geographic mix, partly offset by higher volumes, delivering an operating profit margin of 18.0% (H1 2018: 20.0%)"

Out of every pound, they used to make £20 profit, now they only make £18. That's bad news.

PSN
"Underlying new housing operating margin up by 130 basis points year on year to 31.0% (2018: 29.7%); a reduction from 31.8% in the second half of last year"

Out of every pound, they used to make £29.70 in profit (H1 2018), £31.80 profit (H2 2018), now they make £31.0 (for the first half). They are making a little less profit per pound than they did the last half of last year, but more than the first half last year. That's good news, very good news if they really are increasing their spend on build quality and customer service.

Whatever is happening out there has lowered TW's profitability and not done so with PSN. That's what has driven the market. TW has to increase volume to maintain the same gross profit, PSN doesn't.

And of course, PSN's margin is much higher anyway. That means that the gap between them on profit margin, which was already high, has increased. The only reason PSN's price isn't much higher, relative to TW (IMO) is that they've rubbished their own reputation and need to rebuild it.

Tom, Nige will answer for himself, of course. But I agree with him that the TW results were bad.

All those things you mentioned are 'scary' (causing people to be afraid to buy builders) because people think housebuilding is still cyclical (I don't), and those things can take us into an economic downturn. But those things really have nothing to do with the results. They affect how the market views the share, and thus the SP, but they shouldn't really have affected results much yet. We aren't really in a downturn and housing demand hasn't dropped.

So the reason the TW results were bad is because the margin dropped. Even before we really get into a downturn, even while people are still buying houses as fast as they can be built, TW saw a drop in their profit margin. People didn't expect that.

That's also why PSN hasn't been hit. They had lower revenue, at least in part because they've delayed some sales for quality reasons, but they maintained their margin pretty well. PSN went lower with the market, and because the market doesn't like builders when people expect a downturn, it went lower faster than the market as a whole. But the PSN results haven't really affected it much at all.

The main driver for builders is still Brexit uncertainty. IMO, either doing Brexit (any kind of Brexit, deal or no deal) or stopping Brexit will be positive for builders before long. Neither outcome is going to kill builders. The thing that is hurting builders SP right now is uncertainty. Remove the uncertainty and people will find that these companies aren't out of business and are still making money, under any scenario, and things will go.

Hi, Nige. I'd call it good results. Margin stayed up. Revenue and profit being down are expected because they are delaying sales, as we've discussed. If, as I suggested in the past, that is a one-off adjustment, we've just seen the effects of that in these results.

There are two things that can kill the golden goose here. One is that they don't carry through on improving build quality and customer service, and so never rebuild their reputation, with repercussions including political/regulatory/loss of sales. The other is that resolving those problems is so expensive that it slashes profitability badly.

This report shows they still take the first problem seriously, since it is the first thing Jenkinson talked about, and the results show the second concern isn't really a problem. If profit stays at these levels the SP is an incredible bargain.

Effectively, we are right where we were before. Brexit drives the SP. There will likely be even better buying opportunities between now and mid October. In November, either Brexit doesn't happen and the SP shoots up, or it does happen, and people look around and say, 'Well, it may not be great but the world didn't actually end,' and the SP starts to claim again. Either way, there will be significant volatility between now and then but we are unlikely to see sustained upward movement before November.

Sorry I've gone silent, too much going on elsewhere. Work is a more reliable source of income than investing anyway. :) Good luck all, try to be back next week sometime maybe.

One more thing that's now been said, which I've been kind of wondering myself -- will hard (no-deal) Brexit actually boost the housing market, by bringing in lots of foreign buyers due to the pound being very low?

https://www.bbc.co.uk/news/live/business-49297164, scroll down to 10:17:

Commenting on the latest inflation figures, Tomer Aboody, director of property lender MT Finance, says that house sales volumes are unlikely to change until a decision is made about what kind of Brexit the UK will have. Once there is a decision, the "pent-up" demand will be released.

"Whether it is hard, soft, or no Brexit, the important thing is that a decision is made so people can get on with things," he said.

He said that although on average, prices have fallen only slightly in London, if you look at the bigger picture, house prices at the top end of the market have come off by between 10-15%.

"If we have a hard Brexit and the pound is badly affected, foreign buyers will come back into the market as they will be buying 20 or 30% off market value with a much stronger euro, dollar or yen against the pound. This is likely to push volumes and values up."
>end of article<
A further thought, if it applies to housing, might it also apply to shares? Is there a lot of money sitting out there overseas just waiting to come in once the pound drops lower?

That's why I've been talking about early October. I think once Brexit either does or doesn't happen, the uncertainty is gone, and if it happens with a no-deal, I'm guessing a lot of foreign money comes in and all British assets go up in price. FWIW. And my crystal ball is still broken.

Hi, Nige. So, let's say PSN has a 2% margin drop because of increasing costs, and another 2-3% drop due to 'fixing old problems' / 'changing culture'. I'd expect them to emphasise the 'changing culture' thing, especially if it is 'due to one-off costs to fix some build quality issues and changing the culture.' I'm not sure that's 'conspiracy', it could just be intentional timing of expenditure for political purposes.

I know it may not be audited but it will be pretty accurate. They can get in all kinds of trouble, not just as a company but as individuals, if they come out with inaccurate figures, even if it is for guidance only. So I don't think 'conspiracy' is really a factor but planned spending might be.

I still think you are pessimistic on these results. I see no reason margin will have dropped more than 2-3%. And since PSN somewhat tracked TW down when TW came out with a 2% margin drop, I think most of that is already built into the current price. So I'm really not expecting results to drive share price unless margin drops 4% or more (that will bring a drop) or margin stays at 30% (that would probably bring an increase). I'm completely guessing but I expect a small decrease in margin and big statements about 'we're spending to improve build quality, thus the drop.' And the market will say, 'Yeah, we sort of expected that,' and shrug.

If I'm guessing, I still think the low point will be sometime in early October, because I think Brexit is the biggest driver of the SP right now.

I still think a deal is possible, but it will only happen, IMO, when the EU is convinced that BoJo is going for no-deal and that Parliament can't or won't stop him. Right now there's no reason for them to move -- holding firm keeps no-deal AND no-Brexit on the table, and they still prefer no-Brexit to Brexit with a deal that the UK would accept. But if they become persuaded that no-Brexit is finally off the table, then they are choosing between no-deal or moving. I think there's a decent chance they will move.

But I'm not sure that we'll get to that point. It may be Parliament can stop Boris, but I think those against no-deal are too divided. They agree that they are against Brexit and against no-deal, but they can't agree on what should happen, partly because Labour is led by a lunatic. So, I THINK they won't manage to stop him, and I THINK that in that case the EU might negotiate after all. But my crystal ball isn't working very well....

@Nige: 'Still think my idea of holding a Base Value and Float is best and moving the float between the Coys depending on upcoming Rns's, and Divis. I calcd in normal years this could increase profit by 20% but all things Snafu now cos of Brexit.'

Yes, I don't think this is a good year to be trying to time the market. Although as long as you are staying invested and just moving your float around, if good news comes and the market takes off, it probably doesn't matter which house-builder you are in at the time. The risk is being out of the market if things take off, and I've got a big chunk in cash right now. Still likely to see a further drop, although the market keeps trying to convince me we're near the bottom already.

@Bamps, we see it very differently. I wouldn't consider going short term on builders because I think the market is insane right now.

@Wilfie, I talked about political risk. I see the following dangers:
1. Jeremy Corbyn. He's surrounded by people who think like the nutcases you can find posting on Internet chat forums like this one with endless rants about whatever. PSN put themselves on their radar screen with the stupid bonus scheme that got rid of Fairburn, with some dubious treatment of leasehold, and with build quality issues. If I thought Corbyn was going to be elected, I'd be concerned about holding any builder with significant cash, they'll be targeted, IMO. I don't think he'll be elected.
2. Help To Buy going away. If that happens, people will still need places to live, houses will still sell. It might reduce demand somewhat and so reduce prices, so HTB going away might hurt profits a little bit, but nothing significant enough to really change the dynamics.
3. PSN being suspended from HTB. Brokenshire talked about this, but he's no longer the housing minister. I'm sure for political purposes they will 'carefully scrutinise', blah, blah, blah. But the bonus situation has been changed, the leasehold situation has been changed, and they are fixing build quality problems. I don't see this happening. If it did, it would hurt, because a lot of buyers would avoid PSN and go to their competitors. I don't think it would make PSN a bad investment, even so, but it is a risk to consider.

Then, there's the bad publicity. It is part of the driver of the political risk. But it also has another component -- if enough buyers become convinced that a PSN house is rubbish, they won't buy PSN. That is to me the only really significant long term risk out there, and I'm not too worried about it. The new team seems to get it, and seem to want to get out in front of the problems. If they can't change the culture to at least reasonable quality, this will end up being a losing investment. If they succeed, it may cut profits, but it will still be a great investment once all the market fears about Brexit, Corbyn, etc, recede.