Member Info for VladamirPokrov

My communication with Boot’s FD during my fact finds – nearly all of the above is available in published reports by Boot – was very interesting. Boot clearly have a bold directional strategy going forward which they are currently executing relentlessly. But the business remains cautiously expansive.

My views on the future of land prices in the regions where Boot has its land holdings are optimistic, correct views in all probability, views that I expressed to Boot. Interestingly, my opinion was given short shrift by Boot’s FD who won’t build such optimistic assumptions into their planning or projections. Boot although very clear and expansive in their strategy, are equally focused on downside risks and how they might manage unforeseen downside events.

Henry Boot is in very safe and very capable hands.

I did the following analysis in August, interested in any thoughts, posted in 2 parts, part 1:
Boot’s net assets are currently on the books at a value which is just over 80% of Boot’s current market cap. This is mostly the owned land bank. The owned land is currently only c12% of the land bank, the rest of the land bank is made up of optioned plots (i.e. a paid for option to buy at an agreed price within a certain time frame, usually several years) and planning promotional agreements (PPA’s do not involve the developer in owning the plots at any time, they apply for planning on behalf of the owner for a fixed fee – in the case of Boot’s PPA’s Boot typically charge all of their costs and then 15% to 20% of the final sales value of the land once the planning permission has been obtained).

The majority of Boot’s land bank is based on planning promotional agreements.

Boot is broadly divided into 3 divisions. Land Development, Property Investment and Development and Construction.

The business was obviously impacted last year with a reduction in profits, but all division remained profitable, the balance sheet is still showing plenty of net cash and the business looks like bouncing back to 2019 profits quite quickly. When comparing the profits of the separate operating divisions, I will refer to 2019 figures, as this will likely be far closer to where we are this year than the 2020 figures.

The land development operation produced c54% of the 2019 profit. Owned plots are only c12% of the land bank and yet the net asset base is over 80% of the current market cap. You might want to consider the upside of these figures carefully.

The build up in the total land bank in recent years has been considerable. Currently c90k plots, in 2015 c60k plots ans in 2011 c44k plots.

Such a build up of the land bank obviously impacts the short term return on equity and to a lesser extent upon Boot’s net tangible shareholder surplus. It is for this reason that return on equity is not one of my favoured metrics and the tangible shareholder surplus for Boot – average annual net tangible equity growth added to the dividend, the sum expressed as a percentage of current market cap – is over 9% currently – assuming a fairly prompt return to 2019 dividend levels. A highly attractive metric, particularly as the ongoing build up in the land bank is taking place

The forward profit from that land bank, as Boot continues to grow towards being one of the UK’s primary planing developers for land holdings is going to be sizable. The c90k plots means that Boot’s land bank is 9/10 the size of Persimmon’s, Persimmon having a market cap c26x larger than Boot.

Most of Boot’s plots are in and around the Midlands, ideally located as partial home working and longer but less regular commutes become the new normal. The midlands has not generally experienced the house price bubble of the South East and has some price catching up to do.

Part 2:
My communication with Boot’s FD during my fact finds – nearly all of the above is available in published reports by Boot – was very interesting. Boot clearly have a bold directional strategy going forward which they are currently executing relentlessly. But the business remains cautiously expansive.

My views on the future of land prices in the regions where Boot has its land holdings are optimistic, correct views in all probability, views that I expressed to Boot. Interestingly, my opinion was given short shrift by Boot’s FD who won’t build such optimistic assumptions into their planning or projections. Boot although very clear and expansive in their strategy, are equally focused on downside risks and how they might manage unforeseen downside events.

Henry Boot is in very safe and very capable hands.

Madikwe - I would be interested in your views on Henry Boot, I attach the following analysis from August, in 2 parts:
Boot’s net assets are currently on the books at a value which is just over 80% of Boot’s current market cap. This is mostly the owned land bank. The owned land is currently only c12% of the land bank, the rest of the land bank is made up of optioned plots (i.e. a paid for option to buy at an agreed price within a certain time frame, usually several years) and planning promotional agreements (PPA’s do not involve the developer in owning the plots at any time, they apply for planning on behalf of the owner for a fixed fee – in the case of Boot’s PPA’s Boot typically charge all of their costs and then 15% to 20% of the final sales value of the land once the planning permission has been obtained).

The majority of Boot’s land bank is based on planning promotional agreements.

Boot is broadly divided into 3 divisions. Land Development, Property Investment and Development and Construction.

The business was obviously impacted last year with a reduction in profits, but all division remained profitable, the balance sheet is still showing plenty of net cash and the business looks like bouncing back to 2019 profits quite quickly. When comparing the profits of the separate operating divisions, I will refer to 2019 figures, as this will likely be far closer to where we are this year than the 2020 figures.

The land development operation produced c54% of the 2019 profit. Owned plots are only c12% of the land bank and yet the net asset base is over 80% of the current market cap. You might want to consider the upside of these figures carefully.

The build up in the total land bank in recent years has been considerable. Currently c90k plots, in 2015 c60k plots ans in 2011 c44k plots.

Such a build up of the land bank obviously impacts the short term return on equity and to a lesser extent upon Boot’s net tangible shareholder surplus. It is for this reason that return on equity is not one of my favoured metrics and the tangible shareholder surplus for Boot – average annual net tangible equity growth added to the dividend, the sum expressed as a percentage of current market cap – is over 9% currently – assuming a fairly prompt return to 2019 dividend levels. A highly attractive metric, particularly as the ongoing build up in the land bank is taking place

The forward profit from that land bank, as Boot continues to grow towards being one of the UK’s primary planing developers for land holdings is going to be sizable. The c90k plots means that Boot’s land bank is 9/10 the size of Persimmon’s, Persimmon having a market cap c26x larger than Boot.

Most of Boot’s plots are in and around the Midlands, ideally located as partial home working and longer but less regular commutes become the new normal. The midlands has not generally experienced the house price bubble of the South East and has some price catching up to do.

The lower of cost or net realisable value is how it should be. But readers of IC may recall the hopeless Simon T getting all excited a few years ago about Inland renting out some old properties on their holdings. Apparently this allows the re-classification of the asset under some circumstances to a kind of real estate asset so that the value of the asset can then be raised on the books to some perceived current value, do your own research here I am no expert on how land values can be altered, but this is broadly what happened - and we as investors were supposed to be impressed with this according to Simon, that is when I took profits and sold. There are several large house builders who have paid too much in divis and bonuses and have neglected their land bank. Some are on a P/BV well over 2 times higher than Inland and they need a slug of cheap land urgently. They could probably buy Inland at a 30%, premium, perhaps a little more, to the current share price. The fact that they are not doing so tells you something does it not.

Strictly, I think that Fund managers are just very obsessed by their next quarter or next half results, RDW at 900p could keep their job safe for a couple of years and generally they get very well paid so long as they can stay in position, so not really motivated to take the long view.

Strictly - I am sure that I have spoken to you before somewhere!
Surely - 'Vladimir, stop calling me Shirley!' - the fund managers who hold RDW would realise that 900p would be far too cheap. I know that fund managers have a poor record of realising the value of what they hold in this kind of potential situation, but RDW, with all that consistency of equity growth, 900p! surely not?

My LGEN holding is now slightly over £500k. As background I am now 56, so officially retired, although I have retired due to investing and had left full time work 9 years ago. My total investing gains are about £1.6M since 2009, although, although due to tax, spending and a house investment by current investments are a smaller 7 fig sum. Average annual compounding gains of c26% for my SIPP since May 2009, as verified by the Telegraph, c17x up since then.
Although I am well ahead of the likes of Fundsmith and SMT over the long term, they are well ahead of me over the past 5 years. As they have chased the tech/new economy to ever more unsustainable valuations, while I have stuck with under priced high quality UK facing businesses in the currently out of favour sectors.
And that includes the mighty LGEN. LGEN's tangible shareholder surplus - dividend added to the average medium growth in tangible shareholder funds, the sum expressed as a percentage of current market cap - is comfortably over 10% for LGEN now, indicating that LGEN is now selling for about half a fair price. Compare that with the tangible shareholder surplus for the average Fundsmith or SMT holding, which is typically 1% to 2%. Suggesting that their holdings will more than half in price over time.
LGEN has sold very cheaply before, i.e. back in 2009, look what happened to LGEN's share price between 2009 and 2014. I am not suggesting that kind of price move will occur this time, but certainly a major re-rating for LGEN is now long overdue.
The size of the dividend, the constant build up in tangible equity, LGEN is a truly remarkable business, currently at a giveaway price.

Monoraja - I have major holdings in Redrow and Bellway, the best of the conventional house builders if you like, but the more I look at Boot, the more I agree with your assessment. It is not just the tangible surplus - forward divi plus recent year average annual growth in tangible balance sheet equity, the sum expressed as a percentage of market cap - which is c10% of current market cap, i.e. exactly what I am looking for, it is also the land bank. c90,000 plots for a business worth under £400M, it is extraordinary. If you assume 2019 average profits for land sales for the whole land bank, and that includes the cost of taking the plots through the lengthy planning process, the forward profit for the land bank is around £1bn, based on today's likely prices, there is a profit leverage here as increases in land prices do not change the price on the books or the planning process costs proportionately, the forward land bank profits are nearer £1.5bn and rising. Add to that the fact that the land bank is not all the Boot does, even if you gave away all the land for free, the other activities alone would come close to justifying the current valuation. I would go as far as to say that there is no other company within the UK stock exchange offering the likely low risk forward returns of Henry Boot.

Book value. House building is a complex business model. Key metrics need to be kept in sync. Important to have a decent land bank, in line with the sector normal, otherwise in the event of a very long cycle, like this one, a builder can be forced to bulk buy when land prices are at there peak. Important to also have a cash pile at the top of the cycle so that the builder can bulk buy land following a sector crash when land is cheap. The late Tony Pidgley at Berkeley was always rather good at cyclical management. To understand Persimmon's current position you have to understand Persimmon's recent history. Enter the legal highwayman, Jeff Fairburn. You could write a song about him, set to the tune of The House of the Rising Sun by the Animals. 'there was a greedy man in Persimmon Town, Jeff Fairburn was his name, he held the board right under his thumb, then he screwed them down again, now Jeff he was a savvy crook, all entirely within the law...' and so it goes on.
The Board was guilty of near criminal negligence in giving Jeff an effectively uncapped bonus linked to declared profits as I understand it. As we often say, operating profits are very misleading, especially for house builders. Jeff needed to keep the gullible Persimmon Board and shareholders sweet, so they were paid off, I mean well rewarded with high divis, salaries and bonuses etc. Then Jeff was free to work his magic, well not much magic really, build fast and cheap, don't worry too much about quality, cut short term operating costs wherever possible to maximise declared profit and above all else do not adequately replenish the land bank. Several larger house builders post 2008, tended to refer to large land banks as the enemy, the reason for their woes in 2008. Clearly a business can over spend on a land bank, as you can over spend on anything, but I was baffled by such statements, 2008 builder woes were due to lack of cash reserves and too much dividend not the land banks, a large land bank bought cheaply is essential for a house builder in a long cycle. No, what house builder CEO's were doing, none more so than Jeff, was giving justification to 'strategically' shrink the land bank so that short term profits could be maximised, without the need for adequate cost provisions for replenishing the land bank. This is how Persimmon maxmised short term profit, maximising Jeff's bonus. Yes, the divi was large, much too large actually, but this was essential to keep attention away from Jeff's approaching bonus date. So that is why Persimmon has a land bank the same size as Henry Boot, Boot being about 1/25 the size of Persimmon and with other parts to the business also. Also, this is why Persimmon feels stuck with very high dividends, they may restore the divi on partially post Covid perhaps, which would be appropriate, but probably not, the Board is clueless, as for the land bank, no easy fix here

COMPANIES
M&G/SLA: a tale of two dividends
SLA’s pay-out cut indirectly highlights the benefits of M&G’s life insurance arm
March 9, 2021
By Alex Newman

M&G generates 45 per cent of three-year capital target in 12 months
SLA rebases dividend amid margin compression and further outflows
“Kick the dividend habit” this magazine recently implored shareholders, whether their goal is income or share price growth.

The argument – that total return strategies work better over time – is backed by solid evidence, but ingrained preferences die hard. Be it a subtle distrust of companies’ capital allocation plans or the bias for rental income that only a property-obsessed nation can sustain, UK shareholders like to feel the fruits of their risk-taking in cash lump sums, thanks.

Dividend strategies for M&G (MNG) and Standard Life Aberdeen (SLA), clarified this week, provide useful insights into the market’s views on capital returns and appropriate yields for two FTSE 100 insurer-cum-asset managers whose brands have seen better days.

M&G, in its first of set of full-year results since its split from the higher-growth Prudential (PRU), surprised the market by doing what it already said it would: declare a stable or increasing dividend.

MNG:LSE
M&G PLC

1mth
Today change
-0.14%Price (GBP)
211.50
In the event, the final pay-out climbed by 2.6 per cent, though had it held at last year’s level, the pro-forma annual yield would have still stood at almost 9 per cent. As such, one suspects the heady market reaction to these numbers was less to do with the size of the distribution than the strength of the group’s capital generation – shorthand for growth in capital above regulatory minima and therefore a useful proxy for income and balance sheet health.

Though tangible signs of business growth were predictably elusive – excess capital from both the asset management and legacy Heritage life insurance arms were flat year-on-year – 2020 results will provide encouragement to those shareholders who believe equity can grow with or without reinvesting dividends. Indeed, a three-year target to generate £2.2bn in capital by the end of 2022 now looks beatable - especially after management joined Phoenix Group (PHNX) in lowering their longevity assumptions.

The fact is, M&G’s yield is so high because parts of its business are valued so cheaply. These results showed dividends are affordable alongside rising capital buffers and growth-oriented investments, such as the recent acquisition of wrap platform provider Ascentric.

That deal helped to offset fund outflows elsewhere, including £12bn from retail investor mandates. This remains a perennial issue for the fixed income focused investment group, as it does for SLA, which sold its own closed-book life insurance division to Phoenix in 2018.

SLA:LSE
Standard Life Aberdeen PLC

1mth
Today change
0.29%Price (GBP)
276.90
The terms of that arrangement were tweaked ahead of full-year results,

Strictly, and here is me thinking that you would be up for a bit of senseless masochism!
Think of it as an uplifting experience, a bit like entering the colosseum with 10 pork chops strapped to you to meet the band of hungry lions!

Actually he went quiet after this. I think that we might have located his weak spot, treating him like an 'early onset patient' who keeps missing his meds. Brutal I know, but he is a nasty bit of work and if he stops and wants to be reasonable, then fine. But he is now suppressing comment and engagement as readers get cautious about his barbed responses, but there was definitely a clear ouch! below.

Bogdan Branislov
6 Apr 2021 4:51PM
@MR Clyde @Bogdan Branislov

I answer your points clearly and concisely, regarding Barratt for example. Events or some kind of condition has left you as a very bitter and confused individual, your rational mind has long gone. Best that you stop commenting as you continue to make a fool of yourself.

Delete8Like
Reply
Bogdan Branislov
6 Apr 2021 5:04PM
@MR Clyde

Far from it, I just respond in kind, be reasonable and I will respond likewise, 'yes I WILL TELL ALL THE NICE PEOPLE HERE HOW SWITCHED ON YOU REALLY ARE!'

Delete1Like
Reply
MR Clyde
6 Apr 2021 5:10PM
Ok I will rephrase my last comment:

No you didn't, but if you say so, so be it. However I really don't need your fatuous and desperate insults. As I said enough.

Strictly - the DT got in touch, they are looking for another write up victim for the Trolls to maul, they are hungry again for their next feed. Asked if I had any thoughts, I told them to talk to you, hope you don't mind, you can always say no.

Hold on I get it, I will email Seagulls...

Strictly, I have a suitable email, based on a bloke called Bogdan, I am tech pretty useless you will find, where do I go from here.

So, this blog, would I be able to join it and would my real identify be withheld?

Vlad

Strictly, you see I told you that MR Clyde was 'barking mad', 'mad as a march hare', 'the lift goes up, but it never reaches the top floor'.
Re Henry Boot, the average annual growth in tangible balance sheet equity since 2014, is about 6.7% of the current market cap. Add that the likely forward divi of around 3% and you have a tangible shareholder surplus of about 10%.
But the price that the land bank is on the books for is astonishing. Obviously land stays on the books for the purchase cost until it is developed and sold. How they got the land so cheaply I will never know. The average plot value if you divide the whole market cap by the plot number is just over £4k. I know that Harworth Group had similar plot values on the books but Harworth's land tended to need major remediation and Harworth seemed to struggle to grow their tangible equity with any consistency.
Compelling is it not?
Vlad

Gunga - Boot seems to have c25% more plots than Persimmon, although Persimmon has a market cap c30x larger. If Boot's market cap was based on plots alone, which it is not, each plot is on the books for c£4k. Just get's more interesting!

Gunga
Investing seems to have been your primary income for longer than it has for me. Investing is all I do now, although I say that I am retired for simplicity, as I am 55 now. It has surprised me how many loaded comments we tend to get from a lot of directions. Let's just say, although we play it down, we don't work conventionally and we clearly are not broke. Our circumstances tend to be a lot less respected than someone who is seen to go out and do an honest days work in the conventional sense. It does not bother us unduly, needing wide approval by as many people as possible is a poor objective in life in my view, but is this something that you have come across yourself.
Also, looking closer at Henry Boot, part builder so just about in your zone. Market cap, £350m, land bank over 16,000 acres, assume very conservatively, 5 plots and acre, some may be lower value commercial, but the 5 plot per acre assumption allows for this somewhat. That land is on the books very cheaply indeed. Tangible equity has been building up at around £25M pa for some years while the price stays range bound, looks very under valued. Your thoughts?