Member Info for WiganWarriors

Hi Fred. Seems just you and me have an interest in NICL. I’ve been in NICL for years, and in at around £1.13. They were all nicely sheltered in a PEP, but I suspect that Nichols family planning for IHT took them off the main market and onto AIM. At that time you could not hold AIM shares in PEP / ISA, so I lost my tax shelter. Not withstanding the dire humanitarian disaster in Yemen, if a negotiated settlement agreed then the port will reopen and local market can import Vimto again.

When Brexit gets sorted.

I pointed out that Wimps had discovered that the BoD’s Mandate to buy back shares had inadvertently expired. So this is a special GM to allow shareholder vote to correct the mistake. Does not mean they are definitely going to buy any back, just they can now do so if they wish. Makes you wonder if they were considering, then discovered they couldn’t. So, we will need to wait and see. They have said they will consider how the distribution of specials is done, so maybe cash and buyback split.

Well, cash distributions to shareholders attract tax, so shareholders likely to be worse off than sell a few shares and paying CGT rather than income tax. Also, whatever the reduction in shares mean that same amount of dividend is saved. As always it depends, balance sheet restructuring depends on many things so maybe beneficial. BKG are successful splitting their excess cash between a special dividend and buy backs. You pays you money and takes your choice.

Wimps called special BoD meeting Dec 28 to correct timeline giving the BoD authority to purchase own shares. Doesn’t itself mean they will, but they want to be in position purchase within remit.

Peel Hunt update is quite positive, if you read the headlines in full context. For those who are interested: “Whether the Brexit deal passes through Parliament this week or not, we continue to see the longer-term prognosis for the UK housebuilding industry as favourable. This is due to the supply/demand imbalance, associated Government support and a much more liquid and benign land market. However, the short-term outlook for the UK housebuilders clearly remains volatile, mainly due to the economic uncertainty caused by the Brexit process. This has caused some consumers to defer house buying until there is more clarity on the outcome. While the fluid political backdrop could lead us to change our assumptions again shortly, for now our central case on growth has shifted lower and has led us to cut forecasts and target prices. Revised assumptions – our previous models were assuming modest house price inflation for CY19-20 of c2% (with some regional and product variations). We have now cut this to zero. We have also trimmed our cost assumptions, but still expect to see 1-2% per annum in CY19-20. We have also taken 2-3% off volumes assumptions. Overall, we now forecast an aggregated revenue CAGR of 2% over the next two years (previously 4.3%) and an operating margin decline of 110bps (previously flat) to 18.4% between CY18 and CY20. Changes in forecasts – on average we have lowered our CY19 PBT estimates by 7% and CY20 by 10%. This leaves aggregate forecast FY20 PBT for the sector slightly lower (c1%) than FY18. The cash flow dynamics of the industry remain very healthy and the combination of profitability and a reduction in land spend sees our forecast sector net cash rise from £1.6bn in CY18 to £3.1bn over the next two years. Changes in target prices and recommendations – on average we have reduced target prices by 17% to reflect both the lower forecasts and the lower target multiples we are now assuming. We are making four changes to recommendations – Barratt and Berkeley both to Add (from Buy), Crest to Reduce from Hold and Taylor Wimpey to Hold from Add. “

Well, can’t see the EU giving much away. Also, a fair chance that the Brexiteers may go for Mrs May rather than wait. I guess we should expect continued volatility for the next few weeks and more likely months. Personally I would have preferred the vote to go ahead and fail, then at least Mrs May’s plan would be out of the way and we could then look at other options. As it stands I expect there is more downside risk, than upside, and we will just have to wait until the fat lady sings.

Wonder if it’s coordinated. Three directors buy shares on three consecutive days, maybe other directors will also buy tomorrow.

PR purchased ~750k shares today. With the FTSE recovering overnight we might get a positive reaction tomorrow.

I posted the Liberum viewpoint for interest. Whilst I too don't really take too much notice of Analysts output, when Markets are driven be sentiment and technicals their work has more relevance. I too remember those who dissed Liberum in the past, but that was because they did not like the message. Many had bought in the high 180-190's and when Liberum forecast much lower SP's they just dismissed their arguments. Liberum were the most bearish of the mainstream Analysts, and forecast much lower SP's. By luck or crook, they have proved to be right.

Today's update from Liberum, for those who may be interested :

"Housebuilders’ shares are down 26% in 2018. They have de-rated from 2.0x to 1.3x book value as the risk of a
disorderly Brexit has risen. The shares now show extreme value and we can see at least 20% upside (29% TSR) if a smooth Brexit materialises. We also calculate that plausible downside in a disorderly exit is now discounted in share prices. A Corbyn-led government is an undiscounted risk, and this would most likely be negative for housing demand.

We see at least 20% upside (29% TSR) for the sector in a smooth Brexit transition because valuations are now
very depressed and this would significantly de-risk the outlook. Although the market is likely to be dull, it should be good enough for builders to continue volume growth where able, and maintain margins by taking advantage of lower land prices and re-engineering houses. Valuation looks overly pessimistic. The sector yield (9.1%) is twice that of the UK market. Dividend sustainability is very under-appreciated.

A disorderly, “no deal” Brexit could cause an economic shock and a recession. We believe a prudent scenario could see house prices fall 10% and volumes 20%. Allowing housebuilders scope for some mitigating action, we find that earnings would fall around 40% from our central estimate in this scenario. This would mean the sector trading not at 7x P/E, but 14x. Historical cycles have seen multiples of over 13x trough earnings, so this could mean that significant plausible downside risk is already discounted.

Our preferred stocks are:
• Persimmon: margin progress and geographic exposure.
• Bellway: volume growth track record and undervalued.
• MJ Gleeson: unique business model underpins high returns.

Our least preferred stocks are:
• Berkeley: London weighs on it.
• Taylor Wimpey: strategy unconvincing

... they also place a negative view on builders if we get a Corbyn Government ... but I guess we new that already ...

Nige. As we know the Market often “misprices”, both under and over, that’s how we make the dosh. However, as I have previously pointed out the Market also sets the price and it is important to recognise this. We have the choice to buy or sell at that price, depending on our own judgement. Everything else is just opinion and noise. Having said that my final thought is to point out that the Market can stay irrational longer than you can stay solvent, to paraphrase a talented student of the Market. In which case some shares, or sectors, could be mispriced for long periods of time.

IMHO, I believe that if we just crash out then we will be in for another ~ 10 years or so of low growth and reduced GDP. What chance the politicians wake up and accept their responsibilities, and put the interest of the general public first. I notice that the lead Brexiters (Boris et al), have all gone quiet recently as the reality of the situation starts to dawn on them. Regardless of which way people voted, the world order and trading rules have changed. The existing WTO framework is being challenged and little Britain will find it difficult to muscle in when the major trading blocks are squaring up to each other. Best to stay in the EU for a while, until things settle down again; maybe 5 years. We could always leave later, no point cutting off our nose to spite our face.

Well, if people defer house purchases because of the Brexit uncertainty and I believe the press will whip up fear and uncertainty. Then revenues will fall away in short term but expenses will continue to accrue, so BOD may decide that it is prudent to suspend the special dividend to save cash. They announced their “intention “ to pay the special, but circumstances change. They have always said they believe under severe stress test scenario they will maintain normal dividends, but the special is always just that; special. Or, PE may decide to take a look at some of the builders, or maybe BoD will start share buybacks. Finally, these relentless falls are sentiment and technically driven. Once punters get scared and start withdrawing cash from large funds the funds have no choice but to dump shares to meet the calls. Also many getting closed out, so that will take some time to work through the system.

Well, to be a little more specific. The ~ 11% yield includes the special dividend, and the cover of ~4 times does not include the special. When paying the special they are paying out around 80-90% of free cash flow, so if you include the special then cover is reduced to ~ 1.2(ish).

Some illustrations, and commentary from 8th November. Seems a long time ago ... Nevertheless, reflects the market irrationality of current SP. https://www.ft.com/__origami/service/image/v2/images/raw/%2F%2Fwww.ft.com%2F__origami%2Fservice%2Fimage%2Fv2%2Fimages%2Fraw%2Fhttps%253A%252F%252Fi.imgur.com%252FiHc5aoa.png%3Fsource%3DAlphaville%26width%3D675%26fit%3Dscale-down?source=Alphaville Our scenario assumptions of a “No deal Brexit” are a nationwide 30% fall in house prices and a 50% fall in housebuilders volumes. The fruits of the new UK housing market recovery since 2013 have buttressed the sector’s balance sheets to net cash positions almost across the board. This enables the high free cash flow generation we forecast in 2019-2022 to be paid out in dividends (we include in our assumptions the current level of special payments). These dividend forecasts through to 2022 comprise an attractive and sustained +7% average yield for the 10 stocks at 55-65% average FCF payout ratio. This includes 8-12% dividend yields in the same period for the 3 national volume builders (Persimmon, Barratt and Taylor Wimpey) at 80-90% FCF payout ratios We expect sector EBIT to fall on average by 33% in FY2018-20 and recover on average by 23% in the following two years to 2022. More importantly, we forecast aggregate free cash flow to grow 13% in 2019 as we expect land investment to fall and free cash flow to remain higher in 2021-22e than 2018 as absolute levels of land investment are at lower values per plot in the south. We then forecast aggregate free cash flow to slip in 2021-22 back to the 2018e level as land investment on average increases to house completions levels. https://www.ft.com/__origami/service/image/v2/images/raw/%2F%2Fwww.ft.com%2F__origami%2Fservice%2Fimage%2Fv2%2Fimages%2Fraw%2Fhttps%253A%252F%252Fi.imgur.com%252FdQLYmzw.png%3Fsource%3DAlphaville%26width%3D675%26fit%3Dscale-down?source=Alphaville

The Johnson family have a knack of causing turmoil. Just as Boris has backed off, his Dad and brother have decided to stick their oars in and chase the headlines. Either way, shows how nervous the Market is these days, there was little actual volume in fist 30 mins, then increased volume as shares picked up a little. See what Wimps have to say tomorrow, not that the Market is listening.

Hopefully tomorrow’s PSN and RDW updates will be positive, and no meaningful slide in margins or volume reported. Steve Morgan does have a tendency to shoot from the hip, and I would hope Jeff Fairburn’s PA will have drafted him an acceptable response to the inevitable question re his unacceptable bonus. Otherwise in this fragile market we may slide back into the 150’s.

Interesting that EU denied agreement on Financial Services deal ... must be true then. Also Numis talking up PSN and suggest next update will surprise to the upside. Canacord also issued update taliking up builders now some stability from Budget going forward. Fonterra say they are buoyant, although may need to shut plant for six weeks maintenance. I guess they are just talking up the price of bricks. Ibstock responding well to that statement. Would be good to get the next batch of trading updates with a positive backdrop, rather than a negative one. Just hope macro rents stay subdued for a while.

Forgot. May help to accelerate sales to non first time buyers over next couple years before HTB stops for them