Hydrogen Economy
23 Feb 2016
Results Results ahead of my estimate of 21 Nov but PBT/EPS below the analysts forecasts at that time. I note however Revenue had 30m of Land sales included and contributed 8.8 m profit – which I had not accounted for. I’ll be generous and assume the analysts had. I hope those land sales were driven by sound business logic not a window dressing exercise for the P/L account. Overall pretty good with positive statements about the outlook“The Group continues to view the housing market as being supportive of growth during the current upswing in the cycle….Demand is supported by an active mortgage market and low interest rates. The planning system is delivering an increased level of planning consents underpinning our investment in strategic land and providing a good supply of consented land into the market. However, the level of new build homes being supplied continues to be below Government targets. As a result, we believe a good opportunity remains for well capitalised housebuilders to invest in land to increase housing supply. “Telegraph attributed the dip in Builders to the Brexit risk – not the most obvious sector to be affected, not many houses get exported, but then buyers do get imported and that could get affected, apparently. Clearly if Brexit leads to an economic Brexsh1t then the market will get stuck like a dangling Boris Johnson on a zip-wire, and no-one wants to see that again. [link] became increasingly nervous after Citigroup estimated the chances of a Brexit had risen to between 30pc to 40pc from between 20 to 30pc after London Mayor Boris Johnson and Justice Secretary Michael Gove joined the 'out’ camp. It triggered a sell-off across property-related stocks. Berkeley Group sank 160p, or 4.8pc, to £32.03, Persimmon lost 4.3pc to close at £19.73, Taylor Wimpey dropped 4.7pc to 175p, Barratt Developments slipped 4.2pc to 560p and British Land fell 3.1pc to 671p. ResultsRevenue 946,504 Profit before tax 160,065 Basic 95.4 pMy Nov estimate Revenue 910m + 12.5%Profit BT 151.6 + 13.6%EPS 87p +10.5%Analyst forecasts for 2015 in Digital Look were Rev - 947.7 - 17%PBT - 168.8 - 26.5%EPS - 100.3p - 21%
valuemanbuyer
04 Dec 2015
Re: Strong Update - Price crash You should check out GLEgrowing at 20% per annum from a small base and potential to triple build capacity with little competition at the low end of the market -just what the government are supporting.Ps i hold it and Crst and Bvs
dazedandconfused
04 Dec 2015
Re: Strong Update - Price crash Good post. Have you looked at MJ Gleeson? Similar to Inland on turning value on plots after planning but also building out albeit not so much down south now. One of my long term holds.
Eadwig
04 Dec 2015
Re: Strong Update - Price crash Eadwig 19-Nov-15:"Down >10% early on, I have doubled my holding at @888p. Must be a great buying opportunity, surely?"Sold yesterday @1002p on an automatic Target Set order.I meant to only sell half my holding and thus average down, take some profit and still hold this builder. Unfortunately, I somehow managed to put ALL my shareholding in my Target Set order, so I'm actually out for now. Annoying, because it means I made a very small amount on my initial investment other than an interim divi and about 10p a share.I think BVS are in a stronger position than when I first bought at about @992p back in April, despite results disappointing the market. The latest government incentives can surely only play into their geographic target areas.Unlucky Hardcore, with all your strong sells. Another quick profit missed out on - 12.5% in 2 weeks if you'd followed my strong buy recommendation at the start of this thread.I'll likely be back in if the market gives a good enough pullback on BVS. I'm unsure, I shall have to review my building sector options:1) I might prefer more TEF which is both in London and concentrates on providing affordable homes, so ticks all the government incentive boxes, plus good management and reported a doubling in profits yesterday. It is priced quite well after a placement to secure £500m in advance orders, giving a smallish AIM company an order book on of £1.5 Billion. I already hold in both my SIPP and my ISA.2) ESP - Premier student accommodation in specific towns and cities. Yielding well over 5%, with every chance of asset growth in their properties. I hold just two tranches, but no pullbacks to buy more, just a steady upward trend since a series of IPOs over its first year, which are now ended. This is as much a play on the massive growth in UK education as it is in property, more so, in fact, which is why I like it.3) INL - Small AIM builder whose directors hold about 25% of shares. They do build some houses, also some commercial buildings which they rent. They are brownfield planning consent specialists, offering consultancy services and selling on plots once consent is gained. They have a land bank of 5000+ plots, 1000+ of which have consent. Again, I can only see them gaining from the government incentives.I'm open to any other suggestions. I hold PSN which is my only big builder left. I've never looked at TW in any detail. Perhaps I should? I feel big builders fast growth is over, but they have many years of healthy profits to come with perhaps a little capital growth too.
Hydrogen Economy
26 Nov 2015
Re: Copper piping? Lead solder was phased out 30+ years ago, now Tin Antimony (95/5%) or Tin/Copper/Silver (95.5/4/0.5% ish). The latter is easier to used but more expensive. Flux is based on zinc chloride which is pretty caustic to remove copper oxide and make a good joint- you want to flush it after soldering but not particularly toxic- the fumes however are - so don't get too close whilst soldering and as always when soldering don't overheat cause more fumes and your solder runs out (have tried that. Also don't get flux on your skin- it will burn.That said there is probably plenty of the old lead solder floating around and the less scrupulous cowboy might use it. It didn't do a lot for Roman civilization, allegedly.Silver solder - I think is actually brazing (higher temp) not really solder- I remember silver soldering a screwdriver blade into a handle in metalwork 40 odd years ago (under supervision), I think I've still got it somewhere so it must be good stuff, but don't recommend using it on copper pipes. H2
Eadwig
26 Nov 2015
Re: Copper piping? I'm not an expert, but I believe the biggest component of solder is silver, it is certainly referred to as 'silver solder'. Surfaces to be soldered used to be prepared with some sort of cleaning solution beforehand, if you could be bothered. There may be some lead in solder too, but perhaps being mixed makes it inert, like the mercury amalgam in your fillings?The EU and US standards for all water and gas piping within houses are copper of different diameters to they can easily be told apart. I'm not sure what else you would use? Even some plastics degrade at a microscopic level quite quickly leaving little pockets that are ideal places for bacteria to collect and grow. This is why you shouldn't continually re-use the same plastic bottles for drinks, unless you know it isn't one of these plastic types. You can tell if it is by the number in the center of the recycling symbol. As I can't remember which they are, I only re-use glass bottles for cold drinks in the fridge etc.Eadwig, who grew up in a Victorian house attached to the fresh water mains by a lead pipe - until the water board (York Water Works) dug up the whole street and replaced them all around 1970.
Hardcore Uproar
26 Nov 2015
Copper piping? I have no idea whether it is true but I once heard a rumour that copper piping, the joints are soldered with lead thus there is the real possibility that drinking water could contain lead & to avoid at all costs. Apparently the lead solder went out 20 years ago. Even today the joints are still soldered with some very severe solvents. True?
Eadwig
25 Nov 2015
Deutsche Bank Targets Not that I pay much attention to analysts, but Deutsche tend to be better than most. I found most interesting the difference of Buy and Hold recommendations on different UK builders.Deutsche has 'buy' recommendations on Barratt Developments (BDEV) (price target 667p), Bovis Homes (BVS) (1,323p) and Taylor Wimpey (TW.) (233p)'Hold' ratings on Berkeley Group (BKG) (3,346p), Bellway (BWY) (2,546p), Persimmon (PSN) (2,131p), Redrow (RDW) (481p) and Crest Nicholson (CRST) (527p).P.S. If the Chancellor today manages to change the housing market to meet the government's target for new builds for home ownership (as opposed to renting), it will create the biggest housing boom since the 1970s, reported the BBC this morning. 400,000 affordable homes with £6 Billion of government money as incentives to the private sector.
Eadwig
25 Nov 2015
Re: Strong Update - Price crash H2,"2015/2016 was expected to be 26%, 20% but now looks to be say 11% 2015. "Ah! From the trading statement I had assumed an EPS more or less as previously expected for 2015. I certainly appear to have missed some additional detail (to the RNS) somewhere."I would think labour cost increases will outweigh any cost reductions of copper or other materials"I imagine this is the case. I keep posting up about copper because I'm hoping someone has a handle on how much particularly copper is a cost component of a new build, average-sized house. No one seems go have an answer either on ii or searching on the net. I expect it is a fraction of 1% of the build cost, so probably not very significant. Far more significant for me, is the principle of the matter in that major builders like Bovis should be making sure that the massive cost saving their suppliers are experiencing should be, in no small part, passed on to them. Such attention to detail is what tends to set apart the best from the mediocore, yet I have seen no builder mention any such cost savings.Labour costs need not be extremely significant cost increases, necessarily. Given the skills shortage, the alternatives are trainees (aged under 25 so new minimum wage-rates don't apply) or workers from the EU. Mind you, so-called apprenticeships seem to be much shorter than when I served mine for 4 years on much reduced wages.Eg. Polish salaries are typically 25% of UK salaries. I know a Polish HGV III driver, very happily working an extended working week, based in London, for £440 per week (against my advice, I might add). Whereas a relatively unskilled English friend working in construction earns twice the amount for similar hours.Anyway, the Chancellor's statement today may well lay out a whole new playing field as it seems everyone is expecting incentives to build new housing to be front and center. Under such circumstances I doubt Bovis will have much hold up on its planning permission applications, provided they're of a reasonably standard nature.Thanks again for your responses. Much appreciated.
Hydrogen Economy
24 Nov 2015
Re: Strong Update - Price crash EadwigThe EPS growth history since 2010 on was 141%,65%, 73%, 49%, 70%.2015/2016 was expected to be 26%, 20% but now looks to be say 11% 2015. 2016 EPS growth depends on following but I would guess less than 20% - Whether the planning hold-ups are resolved (eg. there could be a risk that BVS has been overoptimistic about converting the strategic land bank and may not get PP for all they expected). My guess is that they will be able to get most of sites approved- there is a lot of pressure on planners to approve, albeit with a proportion of affordable housing which can squeeze margins. - cost increases. (I would think labour cost increases will outweigh any cost reductions of copper or other materials) - Sales volume and pricing - either prices tail off or volumes suffer due to affordability2017 on - who knows- but probably not as strong as was previously assumed I estimate avge costs grew at 4.5-5% in 2015 whilst avge sales prices rose 7%- but margins were nearly flat, clearly further rise in cost or reduction in price rise will squeeze margins. Price rises seem likely to slow, especially as interest rates rise - so to maintain or grow margins, BVS needs the new sites and to hold costs. Overall picture is one where BVS can continue to grow earnings- but probably at lower rates than previously expected- so on a DCF basis (or any other method come to that) the valuation inevitably takes quite a big hit- you could make a case for a fall of as much as 25% depending on assumptions, and the short term SP is exactly that - the aggregate of assumptions blowing in the winds of news and data, longer term the weighing machine of div payments will prevail. What we have seen does not surprise me- the question is can BVS get the planning fixed and hold costs. On balance at this price - I continue hold my moderate BVS stake. H2
dazedandconfused
24 Nov 2015
Re: Strong Update - Price crash As my Grandad said to me nearly 50 years ago..."buy Land, lad; they're not making it any more". And he hadn't heard of global warming and increased sea levels or flooding back then!! D&C
Eadwig
24 Nov 2015
Re: Strong Update - Price crash Hmm, fat fingered editing removed part of the third paragraph from my last post. The full paragraph should have read :It has improved performance despite the planning delays, which have only pushed back the analysts [level of] expected improved performance to next year... So, has the money just moved out for a year and will be back? ... Or do investors feel those higher margin opportunities have now been missed?
Eadwig
24 Nov 2015
Re: Strong Update - Price crash H2, "Funnily enough I see that I had run a forecast after H1 update and got lower EPS than 87p so I guess i should have seen this one coming."The price drop is still a puzzle to me. Bovis was never showing the same sorts of margins as the other comparable builders, nor did it predict that it would, not to the tune of the size of fall that we have seen, anyway.It has improved performance despite the planning delays, which have only pushed back the analysts expected improved performance to next year... So, has the money just moved out for a year and will be back? According to the statement, demand remains strong with the average selling price up 7% this year. Better than average. They expect an operating margin of over 17%, which, a lot of FTSE 350 companies would give their right arms for.They expect rising costs in some areas, but the cost of materials for both plumbing and wiring houses and developments must be substantially cheaper, along with fuel charges for running plant during construction. So there are swings and roundabouts there. Eg. I wonder how much copper piping and wiring have fallen in price in the last year - Bovis must surely be big enough to force economies out of suppliers? Perhaps the halving of the copper price hasn't yet filtered through and benefits will be seen next year?Bovis @870p at the moment, that's a P/E of just 11 and much less in the out years, and a yield of well over 4%. Again, fundamentals many FTSE 350 companies would give their eye-teeth for.As for Hardcore's 2007 doomsday scenario "look at the accountants" - I suggest he look at the balance sheets of builders pre-crash and now, and then report back with what similarities he sees. UK builders are different beasts to what they were. If they weren't, we'd have seen unbelievable M&A activity in this sector over the last 4 years of fantastic growth. If we do start seeing such activity at high levels in the sector, that would be a worrying sign, I believe.Strong Buy at these prices, I can't see any reason why not, far more upside than downside, in my opinion.
Hydrogen Economy
24 Nov 2015
Re: Strong Update - Price crash HU, here you raise points worth discussing so I will do so in the hope we may both get a better understanding even if we do not agree, "What about the chance/probability of when a share falls 8% on results day, the average SP then reacts over the next 6-12 months. Mathematical chance/probability theory is how things like weather are calculated."Actually I did give my understanding of this - "I suspect that the analysts have woken up to the fact they had overestimated the growth and have offloaded accordingly. Valuation attempts to reflect the expected earnings trajectory over future 5-10 years, if the growth this year is downgraded, the total cash-flow estimate is likely to be seriously downgraded."ie SP will take a step change down.Re accuracy of accounts and risk that these can may misrepresent the true picture - very true for any company and a risk in any investment, but I find the accounts of most builders and particularly BVS to much be amongst the clearest and most transparent, the number of completions, average prices and costs can be readily tracked against reported earnings and are currently at least refreshingly free of exceptional items and adjustments. Perhaps you can share your specific concern about BVS or other builder's accounts?The statistical approach is valid, but totally dependent upon the assumptions - your assessment of range of estimate for sales, prices and costs and chances of financial meltdown or boom probably do not overlap much with mine, so it isn't going to matter much whether we use probabilistic or deterministic methods- we will disagree about value and SP, not sure that should bother anyone. I agree that the macro environment has a massive influence on the valuation of house-builders - but I probably have a different view of that environment moving forward. The macro trend will determine the medium/long term valuation of builders, the data and forecasts of where the economy is going are notoriously poor predictors - in part because they rely on backward looking measurement which is inaccurate and delayed. How often are the quarterly growth numbers revised in the following quarter. If the past cannot be measured accurately and promptly how good are the forecasts likely to be? My holding of builders is actually mainly based on a macro view that the economy is not likely to fall over a cliff any time soon. I look to the Company data to indicate relative performance and trends in sales. prices and costs. I bought into builders in 2012 (a bit late) and have been happy to take that risk which has given more realized profit than the value of my current holding. Your opinion and strategy are no doubt different, hope it's working for you.
Hardcore Uproar
24 Nov 2015
Re: Strong Update - Price crash But we had this type of post on the Tesco BB because posters were making flawed assessments of the accounts, they took them at face value, didn´t have the ability to question & reason. Fist of all you need to look at the methodology of the accounts. You need the ability to reason that is fundamental. Should investors not start to ask questions about accountants?First of all you need to use different mathematical models. What about the chance/probability of when a share falls 8% on results day, the average SP then reacts over the next 6-12 months. Mathematical chance/probability theory is how things like weather are calculated.Let´s cast our mind backs to 2007, builders results were impressive but they were not telling the real truths about the health of the business. You must consider both macro/micro when assessing a business. If you ignore one you´re in heavy trouble. I think the macro heavily outweighs the micro.
