Member Info for WiganWarriors

Hi Troubles,
Important to note that "affordable units" are a requirement of planning permission, and all councils require a mix of properties on site. Whilst you may consider this as "social housing", these units are developed and built from the builders own resources (land, capital etc), and attract similar profit margins to the larger units on sites.

However, most large builders do sell off some units to Housing Associations and to PRS. This usually occurs when they are selling too well, or they want to close out a site quickly. Obviously they take a hit on the margin. Wimps have done this with a few, and Barratt did this with quite a lot as it tried to exit the Central London market last year.

The lower risk partnerships developments are mainly driven by Housing Associations, and increasingly by private equity. This is where the land and capital is provided and a developer / builder is contracted to deliver. The builder has little risk, requires little capital and therefore his return is more like 5%. Some of the big builders do a little of this, just to balance out risk across their portfolio.

Some of the listed builders try to do this on a 50 / 50 basis, to avoid the normal cyclic nature of the building industry to even out returns. One such listed company is Countryside.

Hi Jarcon,
bear in mind that if Wimps shift towards tendering for social housing partnership builds, then the margin is around 5%, as opposed to 18% for controlled building on their own land (which includes both private and affordable housing units). So, unlikely that Wimps and their ilk will get too involved, just the odd partnership deal to manage risk and be seen to be supportive of Government policy. There are other specialist builders who focus in this area, requires less capital.

Hi Tom,
just an observation as Woodford has blotted his copybook big time. He had to close his EIF Fund due to lack of liquidity and unable to give investors their money back when they wanted it. So the fund was closed to withdrawals whilst he tried to raise cash by selling all his illiquid stocks. Now he has gone along way to doing that (at a substantial loss to investors) he has been recycling that cash into more liquid FTSE stocks. Once the fund reopens there is likely to be a rush for the exit by those locked in investors and he will need to sell his FTSE stocks to repay them. So, expect some heavy selling of EIF FTSE stocks once EIF is opened again, likely at end of year. Either way, Woodford’s reputation is toast.

Not necessarily bad news for Wimps, as whilst he sold BDEV heavily, and bought Wimps heavily in first half their SP’s moved in opposite directions; Wimps down and BDEV up. Confirmation if needed, that it is the Market that sets the SP regardless.

Interesting to note that Woodford EIF's biggest purchase in first six months of this year was Wimps. They bought £103,349,000. Second largest sale was BDEV at £138,305,000. Once the fund reopens, likely everyone will rush for the exit and Wimps will get sold down ... Hmmm

Hi TMT, also worth noting that Wimps are heavily investing cash into their customer centric strategy to create a "digital" business. This involves all aspects of their business, back office functions, site build and manage functions and customer facing functions. Wimps are probably the leader in this area compared to their peers. They have recognised that punters will pay a premium for a more aspirational and individual experience when purchasing a new home. This digital business model enables Wimps to move closer to an individual build to order model, and are probably the most advanced amongst their peers in this approach. Gone are the days of build em, and then try to sell em. This helps smooth out the cyclic nature of the sector and should be reflected in more predictable returns for investors. Personally, and notwithstanding the Brexit background, I would expect Wimps to prosper and become the leading brand of the larger mid market builders. Of course, IMHO.

Hi TMT, you are correct that reduced operating profit is not good. Markets like to see steady growth, and tend to over react when that pattern breaks. Just to add a little more colour to your point, analysis of segmental information shows just where the damage has been done. Business units: NORTH flat operating margin, LONDON and SE fallen 3.3%, CENTRAL and SOUTH WEST fallen 4.4% and SPAIN fallen 5.4%. So, this reflects not just increased costs but also the need to offer incentives (discounts etc) in some business units. Which of course reflects the general market activity across the sector. 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 depends, PSN reports so if they also confirm falling margins then nothing to support the building sector from further falls . If they report no change then at best may stop further falls. Can’t see much to lift the SP at the moment.

Have to say I’m not really too worried about the RICS news releases, as they are focussed on the second hand market. Whilst that does have an impact on housing chains, it is only minor as more than half of new build sales go to first time buyers or builders part exchange existing homes. I accept that when the markets glass is half empty, any news can continue to be seen as negative. BWY’s trading results will have much more effect on the builders, along with usual macro events today. BWY results ok, but they also confirm margin erosion and flatlining. I’ll stick my neck out and guess that we will close above 1.5 today :).

Hi Graham, as for pressure on margins. Most builders will see similar pressure with labour and costs, but Wimps have been pouring money into customer service and efficiency programmes. This should pay back in the medium term but adds extra pressure to margins in the short term. Other builders might show flat growth, margins and costs today but likely feel pressure on revenue and margins in the medium term and especially when HTB ends. In a nutshell Wimps being penalised for investing to build a strong and sustainable business.

Hi Krusty, my point was that specials are paid from whatever is left over after all other claims on operating profit and the normal maintenance dividend have been settled. For the last few years ~£300M or so. In order to help maintain specials at around this level, the plan is to reduce short term approved land bank from around 5.5 years to 4.5 yrs, thus reducing land purchase expense. Of course this will be a little lumpy as you need to ensure each division has enough to keep busy at anyone point in time. If, and it is an if, Wimps are able to reduce land spend (probably around half of the special), then they reckon even in a flat market they will maintain specials over a three year cycle. 2020 is the first of this next cycle.

Of course, macro events and local Brexit issues are the main risk, but UK does have a resilient housing market outside of Central London (where Wimps are having to discount to move units). Each individual needs to assess risks, against what they want from an investment in Wimps; revenue stream, short term trading, SB trades etc.

Personally, I have built a large(ish) position around nine years ago, and expect to hold for many years.

On the side, Wimps are a good SB trade given large tax free dividends, and carrying cost of around 3.5% vs double digit dividends multiplied by leverage. Just need to assess whether you can exit at around the same entry price, over extended periods to accrue the double digit dividend revenue, which is tax free.

As we all know, or should know, it's the Market that sets the share price. Recent years Wimps, and builders in general have struggled to convince the Market. Of course, above IMHO

Worth noting that the Chairman bought some more shares yesterday after the results. He has a good track record in buying and selling Wimps. He will know the real state of the business, so that’s encouraging news.

They are just delayed trades (occurred earlier in the day), only getting booked after the close

hi Krusty,
Err, where do you get "signals ... to reduce special dividends ..." from. Dividend strategy was set for a three year cycle at the last Capital Markets Day, following on from the previous three year cycle. Normal dividends are actually quite high, even without specials, reflecting the nature of cyclic businesses

Yeah, well, the BoD have settled on the maintenance dividend policy which means it may fluctuate a little depending on which is the greater, net assets or 250M. Also, they decided that ALL unused cash (incl after normal divi paid) to be returned to shareholders. This of course implies that they do not need or want the excess cash in the business. Their prerogative to set the strategy I guess.

Problem for me is that >40% tax on divi is not efficient. If that cash was retained in the business as a cash asset, then reasonable to expect SP to reflect that, and allow shareholders to sell a few shares if they want additional cash and only pay 20% CGT on that sale, which is less than half of current situation. Ah well ...

Hi Bamps. Just a small point re divi's. Normal maintenance dividend is not linked to profit, its tied at ~ 7.5% of net assets with a minimum of 250M. Special is returning any excess cash after all other claims by the business (incl normal divi). So, even if profits fall the maintenance divi is unlikely to fall. If free cash falls, then we can expect special divi to fall.

Hmmm, after four straight years of decline I would be cautious with respect to the odd "good day". Those cats have a habit of bouncing ...

Hi Troublesome. Well, I've been trading / investing (depending on your viewpoint) in Wimps for a long time now. Mainly building and holding a position nine years ago once I judged them unlikely to go bust, and subsequent SB (tax free) positions all the way up. One thing you get a feel for is when the Market is worrying, often unnecessarily, but we all have to accept it's the Market that sets the price. As from here, I suspect that the Market is now ready to move on as long as Wimps and the rest of the mainstream builders continue to post decent results. Let's see what gets said next week, and how confident the BoD are re future specials. A couple of points to back my hypotheses; 1) Wimps have built a very strong BoD, probably the most respected in their sector. This sits well with Institutional Investors and should encourage them to invest over the long term. Their strategy of a customer centric "digital" business is spot on in my opinion. 2) The "City Scribblers" have consistently mis read the underlying profitability and consistency of the builders core business (not withstanding softness in the Central London market). They have fallen into the trap of assuming builders just build them, and then try to sell them, as used to be the case. In fact, the industry has made great strides in building to order, and subsequently de risking the Balance Sheet. Not all Analysts have cottoned on to this significant change. 3) Finally, either Boris will get a deal (as you know very good for the builders in general), or he will set a light under the economy with large tax cuts to help mitigate the slide into recession. So, macro events permitting, I now view the balance in favour of a modest recovery in the well managed builders, of which Wimps are near, or at the top similar to BKG. Of course, IMHO.

Well, guys and galls, any views on how Boris's annointment might affect the builders ...

... and when his hands are not on handlebars, they are in his pockets as he shambles along ...

Can’t imagine that there is anything positive if we leave with no deal, regardless of individual politics. However, Parliament likely to block at cost of General Election, which itself could ensure another hung Parliament who cannot govern. Sterling will crash, and all the consequences that will bring ... Lions led by Donkeys comes to mind ...