Eadwig
23 Oct 2019
Re: more yawn malj1: UK population has never been static. OK. LARGELY static between early 70s to early 90s image.png715x490 18.2 KB
malj1
18 Oct 2019
Re: more yawn Not quite. Net cash is post the payment of dy. UK population has never been static. At start Queen Victoria’s reign 1840 population ca 30m, end reign ca 1900 population ca 40m, 1945/50 population ca 45m, mid 90s population ca 55m, today population 67m. But it’s far from all about headcount. Victoria & Albert were surprisingly restrained with a mere 9 children (actually quite low for their era). Today the UK fertility rate is a lot lower having fallen to ca 1.6 in 2000 rising back up to almost 2 in 2012. Thus ‘headship’ falls meaning that even with a static population you would have a radically rising no. of family units. This coupled with radically increasing life expectancy massively increases the trend towards single living/increasing no.s of households. Everyone needs a roof over their heads. Starting next year the 20+ year old age cohort will rise ca +25% over the following decade & ripple through the demographics - this is a done deal, as those babies have already been made. Under current operational dynamics for the UK build industry, no builder can operate with less than 5 yrs l/b. The problem is not that the builders have too much land, but in fact far too little. Aggregate l/b costs are such that builders have to invest ca 2.5 yr 1 tgt t/o in the l/b in advance of any revenue or profit. This is both a massive b2e but also a massive drag on ROCE. I see no credible housing policy from any politician of whatever persuasion!
Eadwig
18 Oct 2019
Re: more yawn malj1: This has been playing out for pretty much 40 years. Except the population has risen approx 10m since 1997. Yet people say there isn’t real demand (‘only want’) and that the builders hold back building to increase prices by limiting supply (that is what Johnson parroted at the conference). I differ from you only concentrating on net cash. That is what dividends are paid from. If there is a sharp reverse in the market and the companies are carrying a lot of debt, the first thing to go is the dividend. No accident that PSN carries no debt and was the first major to start paying dividends again in the last cycle. Having said that, in such a huge growth sector over the last few years there has been almost no major take-overs to ‘buy growth’ (which necessitates taking on debt). They certainly seem to have leaned the lesson there and possibly have transitioned from growth companies to settled high yielders without the usual pain for the holders. Something very rarely seen across a sector.
malj1
18 Oct 2019
Re: more yawn The only position that interests me is net cash. So £0.75bn on the last b/s & c/f analysis indicates this will rise to ca £1bn next summer 2020. So either a/an insurance buffer or b/increased dy or c/accelerated l/b buying. Even if builders just flatline at current operational levels the shares are still a steal. Given the nature of the supply-demand imbalance flatlining is unlikely. Either a lot more houses are needed (ca min 0.4m pa to meet just the run rate but not the backlog of demographic household formation + most likely replacement of existing stock at a rate of ca 0.5m pa to maintain quality of stock). Absent that at some point major hpi strikes again per 09. The UK is not selling average houses to average people on average incomes. It is selling a static number of units to an ever smaller proportion of total UK population, where this reducing proportion are increasingly the wealthiest members. This has been playing out for pretty much 40 years.
Eadwig
18 Oct 2019
Re: more yawn The other cloud on the horizon is the attack B. Johnson made on ‘the big six’ housebuilders at the 2018 Tory conference. Nothing I’ve seen so far looks like he is prepared to do anything about that just yet - emergency budget scheduled for Nov 6th, so we’ll maybe see something then. If it wasn’t all just hot air, which it probably was. You talk of BDEV’s cash buffer, but how much debt have they got? PSN have a similar amount of cash, and no long term debt (as usual). They are normally the best protected from any downturn. Genuine question. I haven’t checked BDEV’s accounts since I sold my last tranche back in 2015, I think it was. I preferred to hold onto PSN as my stake in the sector as I sold out for big profits during the fast growth period, then had to wait after Brexit for PSN to come back (took approx one year) then I sold my final tranches in PSN in 2017 (800%+ profit including divs from a position built in 2010/11) Unfortunately Brexit has muddied the waters so much it is difficult to tell just where we are in the housing cycle. i don’t feel its time to start buying again just yet, although I wonder if Brexit has essentially been the down cycle for this period (20098- ?). I don’t think there is much capital growth left in the housing companies based on the UK average salary and the average house price… however, we look set to have a take off in immigration coming if Johnson remains in power, so that will fuel demand. Even so, probably most companies can’t improve their margins much more, even if revenues rise, so again, I don’t see another period of fast growth in share price without some crash first.
malj1
17 Oct 2019
Re: more yawn Interesting point. Given the nature/length of BAR’s l/b, it looks to me like (barring an outright collapse in hpi, unlikely given the dramatically worsening in supply-demand imbalance - though come on down HCU/SR to spend another decade predicting theendoftheworldisnigh) they will consolidate op% at ca 20% for the coming decade. Clearly they are buying land from gov’t release. For this they benefit from being the UK’s largest player thus able to take on big gov’t sites, from which many minor players are effectively excluded, & being well in with the gov’t essentially as the ‘industry spokesperson’ (Pete Redfern @ TW having singularly blotted his copy book in that regard). With ca £1bn spare cash BAR have a great insurance buffer, or could singularly increase the dy/rtn capital, or yes engage in opportunistic l/b buying. The latter is essentially what they did post the CC. Though I suspect the best returns will not be in ex-farm but prime central London where development has ceased for quite a while. An envious position to be in.
Eadwig
16 Oct 2019
Re: more yawn There is still a possibility of a lot of green field land coming on to the markets cheap because of brexit (farms closing). That might reduce prices and land bank values therefore, but land doesn’t stay cheap in the Uk for long, so it could also be a great opportunity… if it happens.
malj1
16 Oct 2019
Re: more yawn Quite. It seems to me we’re in a repeat of March '09. There again I can’t object to folk selling me their shares at ludicrously low prices (as they did a decade ago). After +4 decades experience, I conclude the overwhelming majority of investors, private or professional, have no ability to understand how companies work & relate this to the sp (price is what you pay & value is what you get). Technically right now it’s worth noting Naughty Neil is being liquidated, so this will be dumping lots of builder shares at firesale prices. Bad luck for him & his backers!
Eadwig
16 Oct 2019
Re: more yawn What I have found amazing over the last few years is just how low the builder’s P/E ratios are compared to the average over the FTSE 100 or FTSE 250. Well below. Still many traditional investors wont go anywhere near. Their loss it seems to me, although I’m mostly out of the sector myself at the moment for technical reasons I wont bore you with.
malj1
16 Oct 2019
Re: more yawn Yet another IMS, yet more steady as she goes. No probs here. The much predicted doomngloom implosion fails to materialise yet again. Prices tick along nicely. The move out of prime London is a one off, which sooner or later reverses (& actually BAR has some spectacular pads at Tower Bridge @ £10m a pop). The recent % upweight of soho sales will reverse as new site openings slow, boosting group margin. Most likely a cash float of ca £1bn (!!!) + ca decade of land with op% ca 20% locked in + dy ca 7% net which can effectively be locked in. This after growing the l/b, enabling them to feasibly grow units ca +10% pa without cracking sweat. Backdrop: supply ludicrously constrained & low in both new build & secondary. Need: remorselessly growing on an accelerating basis. On the assumption of a brexit deal/conclusion, BAR look a major long term winner. Even on no deal/no conclusion they still look very well placed. Faites vos Jeux …
malj1
06 Sep 2019
Re: yawn So another v v sound set of results. Looks set to run with a cash float/buffer of ca £1bn. Where is the collapse endlessly predicted on this bb etc? Supply continues well stalled whilst demographic need relentlessly rises. Sooner or later … I know I know, it’ll collapse tomorrow, just as it hasn’t every day for the last decade. Snooze button time …
malj1
10 Jul 2019
Re: IMS again I forgot to mention the order book +20% yoy. All the above far better than PSN & without the ludicrous bonus scheme!
malj1
10 Jul 2019
Re: IMS again Can’t fault this, though no doubt the usuals will try. Good but slightly muted unit, asp & margin performance (in essentially a flat market). Largely due to mothballing central London activity. These will reaccelerate as this migration clears & sites comes on stream in outer London & the new Cambridgeshire division (both still high asp regions). Yet again the core l/b increasing about +8% over the utilisation rate. Ca £0.77bn net cash on the b/s. The best build quality rating of any UK bulk builder by far. As of today BAR is a net dy +8% vs gross med term gilt rate 0.6%. This just shows the level of fear in the market. But as ever everyone needs a roof over their head & there are an exponentially accelerating no. of those people in the UK.
malj1
01 Jul 2019
Re: tea leaves Forget reading the tea leaves, which always leads to betting on raindrops coming down the window. A v poor substitute for understanding the company &/or the industry in which it operates. The only thing ‘head & shoulders’ is ever indicative of is dandruff. Today’s boe mortgage lending data shows average £ mortgage advance (a pretty good proxy for hpi) going exponential. Yet again no collapse as is relentlessly much mooted here & indicative of sharply accelerating hpi as the UK house supply demand imbalance becomes ever more extreme & as London/se-prime comes back on stream.
Ripley94
26 Jun 2019
This just a momentum play? BDEV… XXXXX Got half back today @ 553p.
