malj1
13 Sep 2019
Re: again again There’s a lot going on here. More than I can put in an post. But the precis version. The GT board have comprehensively thrown in the towel. Housing ok, construction legacy costs dire & major dy cut. The legacy costs are clearly worse than anticipated, uncapped & look increasingly unrecoverable. The board clearly haven’t a clue how this will turn out, neither have I & I daresay neither has anyone else. Ironically these were created by Greg Fitzgerald, now head of Bovis. Bovis acquire the good stuff (housing) leaving the duff (construction) hived off in rump GT. This look unequivocally a good deal for Bovis (giving I think an i/v of ca £30ps in a flat housing market). Bovis are paying 0.574 Bov sh for each GT sh = ca £6ps. Further they inject ca £400m into rump GT (ca £3-60ps). So they pay total ca £9-60ps, of which you receive effectively £6. With GT @ ca £6-90, Mr Mkt is saying construction has value destruction/black hole of ca £2-70ps/£300m. ??? But with construction margins imploding, despite a ‘turnaround strategy’, & legacy costs amok who knows. The bit worth considering is Bov. To my mind the question is whether to convert now (ie sell all GT & buy Bov) or wait until after completion (selling rump GT into Bov). I can’t see the deal failing (GT are clearly being shopped by the board). Decision date will be before 27/9, as this affects dy sequencing. There are also some nuances. But in a nutshell that’s it. Arguably the above values the ‘new’ GT at just over £17ps. So it’s turning out pretty much as I posted a few months ago, despite the alternate view tantrums!
malj1
11 Sep 2019
Re: again Bovis & Gallford. The game is afoot here. Now to work through the no.s I suspect GT not as good as I thought (construction problems) but underpinned by the bid. I’ll be v interested to see the flipside, that is the acquisition impact on Bovis. Arguably BOV are offering ca £5-90 ps in BOV shares (at today’s price) + £400m cash/debt = ca £3-60 ps into GT (not direct to the shareholders) + underwriting the pension fund. This to acquire the house building ops, ie the l/b. For which they are offering min £9-50 ps, say £10 ps given the pension fund assurance. With a GT market price £6-60 ps, Mr Mkt is saying GT has min -£330m construction black hole. Hmmmmmm … really?! So my previous view was correct, despite the other tantrum poster. The Bovis shares themselves look undervalued, per all builders. At intrinsic value the Bovis share element of the offer is probably ca £9 ps making the total offer worth about £13 to GT. As previously commented the question is how long/large the tail of construction problems. But I can’t see the GT construction stub coming out with a negative share price, though clearly it will not be a lot.
malj1
04 Jul 2019
CLLN all over again Interesting to see the bid y’day for Telford. The price paid there easily supports a valuation for GT min £16 ps.
malj1
05 Jun 2019
CLLN all over again SP still rising. Increasingly Mr Mkt coming to my p.o.v.
marktime1231
30 May 2019
CLLN all over again OK I give up on this and you, I don’t really care because I am not in GFRD anyway and you clearly are not receiving. If you think any part of the business is sitting on £1.2B of cash, net or otherwise, you are f…g nuts. Now go away.
malj1
30 May 2019
CLLN all over again You comprehensively omit the (just under) £1.2bn cash on the b/s. This has clearly been generated largely by construction & will remain with this unit proportionate to debt remaining. Group basis the net debt is reasonably consistent & reducing over time. The £1.2bn net cash will not be going with housebuilding etc to BOV. Otherwise they would pay ca £0.95bn basic & get the l/b + the workers + £1.2bn cash. Bonkers. Once BOV takes £0.1bn debt the group co is ungeared. Yes if you stop the clock today construction looks sickly, but it’s clearly not being stopped today & should be able to trade out of its woes - this is hardly a novelty. A deal @ £9 puts total GT, as is, on the same valuation stream as BOV - though even then this remains way below intrinsic value (ca £18 min) as all builders are v poorly valued. As BOV will have clear synergy benefits + 85% of GT profits come out of housebuilding, the offer should in fact be considerably higher. That’s why the deal look opportunistic. Until a formal deal is tabled showing the allocation of debt, cash, central costs & the share swap basis (or share + cash basis), that’s as far as you can go. Your view that construction has a solus value of say -£4 a share at least is untenable.
marktime1231
29 May 2019
CLLN all over again My (and analysts commenting in the financial press) view is at odds with how GFRD would like us to view the balance sheet and with your echoing that they only have (net) debt of £40M. Which is odd indeed, utterly presposterous in fact. That you think the debt is only £40M and press analysts think it is really £700-800M. For a start you need to observe (net) debt in terms of the games which GFRD play when stating cash and net work in progress and unresolved provisions. I have explained this at length above, it is the same trick as CLLN used to confuse unwise investors. Then add that almost for sure there are more problems in the construction business yet to come out. So. Net of what you need to ask yourself … the landbank which is what Bovis was hoping to buy, and what else? In the last accounts there were £170M odd of intangibles presumably from historic acquisitions, not really worth a fig. I am not going to spend forever trying to unpick the rest of the balance sheet for you but you need to look harder at the actual net positions of hard assets, hard borrowings and the cash + debtors vs current liabilities + creditors positions. As a banker you would need to look at the actual borrowings position, sums long spent which GFRD have outstanding and which are secured over its various assets … the figure is something like £800M. That stands as debt until someone repays it … Bovis were going to take just £100M of it in return for all the landbank assets. What do you think the raw landbank is worth on its own? What else is there to secure the remaining borrowings? £170M of intangibles? -ve work in progess? I don’t think so. The sp is rising again in the hope that someone will come in with a higher bid, and which in effect would have to be a price at which the bankers are prepared to write off all the residual borrowings. The person with the best view of all this, and the true worth of Linden Homes to another builder, is probably Peter Truscott currently on gardening leave from GFRD on his way to CRST. Except that his focus at CRST will be on efficiencies and better returns, something which he helped achieve at Linden Homes, not looking at expansive growth by acquisition. The possibility of another bidder or a higher offer from Bovis cannot be ruled out, but a stronger play from someone minded to acquire the builder/landbank would be to let GFRD sink and then trade the residual assets unencumbered by the bad part of the business. Why do the GFRD bankers a favour and take on the bad debt now? It is, without taking either side, a 50:50 chance that GFRD can tough it out slowly exiting its construction business and paying off its losses and debts. It will not have much of a dividend in the meantime, and would probably need to realise value in land assets and reduce investment and cut costs / corners everywhere. I would not be paying £6 a share for that prospect. Nor £5.
malj1
29 May 2019
CLLN all over again Well with no formal bid on the table a lot is still unclear. Eg the allocation of central costs or the extent of BOV’s clearly present ‘synergy benefits.’ My back of envelope puts these minimally at +£20m pa from admin staff reduction. Your view on debt is odd. GT have -£40m net debt - if essentially they retain the debt then they retain the ca £1.2m cash on the b/s. If BOV were to take -£100m debt in the deal, then GT would be ungeared. I don’t think construction is worth much, but I don’t think it’s worthless either. GT is certainly not bust, as you put it. Fitzgerald spent almost 35 years at GT & essentially built the company - so he knows what it’s worth. For what he’s offering he gets a steal.
marktime1231
28 May 2019
CLLN all over again Well said. On the other hand. I think Bovis were also buying the prospectively viable but low margin Regeneration / Partnership part of GFRD building social housing on top of Linden Homes. More importantly, the snippet I saw this morning said Bovis was only proposing to take on £100M of an estimated £700-800M of group debt … leaving behind a disastrous infrastructure construction firm with trivial assets and £600M+ debt. No wonder the GFRD board said p off. The residue would have been instantly bankrupt. Considering much of the group debt has been taken on to acquire assets for house building I would say much more of the £700-800M should be allocated accordingly, and that explains our different views on the matter. Bovis were trying to steal GFRD’s land bank. GFRD’s price is up a bit today in the faint hope someone will offer a bit more. Actually someone needs to offer rather less and take on more of the debt or GFRD is bust. GFRD might still be bust either way.
malj1
28 May 2019
CLLN all over again Well Bovis seem to have offered £8-80 ps which has been rejected as opportunistic & undervaluing GT. So I don’t think I’m far out.
marktime1231
17 Apr 2019
CLLN all over again I don’t think LH net asset value + net work in progress is worth £9 per share but I take your point that I am adopting an extremely negative view.
malj1
17 Apr 2019
CLLN all over again At current highly depressed stock market ratings of quoted house builders LH solus (or + construction @ nil profit) is worth £9 - intrinsic value is north of £16. So the question is how long the tail of construction gremlins? Even so these would be one off & the co nevertheless remains highly cash generative. Yes there might (or might not, given the aforesaid) be another rights, in which case this would be highly dilutive as the mgmt wd have nil credibility. The judgement & trigger will be next month’s IMS.
marktime1231
16 Apr 2019
CLLN all over again So yes the housebuilder Linden Homes in isolation is worth my midprice guess of 590p, but only if that was detached from the construction business. Not making a penny ( or a loss ) from the bad part of the group is a rosy assumption, as an incoming exec running fresh eyes over the books you don’t commission a strategic review without a suspicion that there is more as yet undisclosed bad news to discover. Same as CLLN, the culture has been to hide the true extent of current and potential damage. And an exit from potential loss making contracts will also cost the group. How do you detach the housebuilder without paying the price? By the way I am guessing they are still fudging the true debt position, same as CLLN. What reaction do you think GFRD will get if they have to make another funding call? My instinct is this will end in a crash because the goodwill needed to rescue GFRD intact ought to have evaporated. 4xxp on the cards. What would you pay, if you were one of the big builders with cash to spare, for a) Linden Homes in isolation vs b) GFRD warts and all?
malj1
16 Apr 2019
CLLN all over again Not quite. There’s still a good core business here in house building. The issue is how many legacy gremlins in construction - albeit these are one-offs. Assuming construction never makes another penny ever again (unlikely) then at £5-90 this looks v attractive for a low tier housebuilder. Of course the construction track record begs a lot of questions on board bonuses, as all the issues to date are several years in the making. PS I too have a chunk of CRN.
marktime1231
16 Apr 2019
CLLN all over again Ahem … (but not really enjoying the moment because one the deserting rats, Truscott, has moved to CRST where I hold a material position)
