RE: Furlough and Improved HBF ratings16 Jul 2020 11:55
Hi, Nige. No doubt that PSN has outperformed relative to BDEV in the last year.
Your benchmark of 4/1/19 is when PSN was going through the bonus fallout. So it was already undervalued relative to other HB at that point in time. I hadn't bought in yet because I wasn't convinced they were going to fix their problems.
The pricing in August 2019 was silly. It was based on Liam Halligan's hit jobs after they had already taken huge action to rectify the problems, and on Brexit fears and political uncertainty. You've said yourself that sentiment is hugely divorced from value/reality sometimes. The sentiment around the share was at an incredible low. The Brexit fears and political uncertainty certainly applied to all HB, but it was multiplied with PSN because of the bad press.
I said back then the sentiment around that would turn, that there would start to be articles saying that they'd turned it around and had become good corporate citizens. I didn't expect the Guardian to be the first paper to say that, but they were. How many bad reports about PSN build quality have there been since the turn of the year? And the "no furlough" policy is a huge plus on the PR front.
Have PSN solved all their problems? Probably not. But they've swung the narrative 100%. They are headed for a five star rating, and the retention policy is out in front of everyone else.
So in my view, your analysis has merit but it's overblown because of specific market aberrations around the dates you are using. PSN was undervalued relative to other builders on your benchmark date (4/1/19) because of a specific event (stupid bonuses). It was hugely undervalued relative to other builders on its low date due to a media campaign over historic, not current, problems, which were being resolved. Those problems are mostly resolved now and the market sentiment around them is certainly resolved.
Your analysis shows that PSN currently has a significantly higher SP relative to BDEV than it did in August, but August was silly. That doesn't change the fact that there's been a very significant swing. I don't think it is really 45%, that was a temporary aberration. But it's significant, you are correct about that. That tells us the market is valuing PSN much higher now, relative to BDEV, than it was a year ago.
It doesn't tell us, though, whether one or both valuations are too high. It just tells us there's been a shift. I think it's largely explained by the news/sentiment surrounding PSN. I don't think it's anything negative about BDEV.
I don't think anyone is really going to lose long term with either share. And, as we've discussed before, I don't much care about short term on this one.
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