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Housebuilders

Stocks and Shares ISA , Choosing funds for ISA's, risk factors for funds etc
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MickR
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Housebuilders

#274714

Postby MickR » January 2nd, 2020, 11:10 pm

Hi

I've invested in Persimmon for a number of years, which have done me well so far.

Looking forward, would like to invest more, or even spread my risk in the sector, and invest in one of the other UK Housbuilders. They are all looking very much the same when analysing teh recent performance and Yield so any suggestions? I'm looking at a direct investment rather than a REIT, though suggestions for a normal fund, IT or ETF covering them would be welcome

thanks

Mick

AsleepInYorkshire
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Re: Housebuilders

#274716

Postby AsleepInYorkshire » January 2nd, 2020, 11:20 pm

Try Bellway - see if you like the numbers

AiYn'U

MickR
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Re: Housebuilders

#274721

Postby MickR » January 2nd, 2020, 11:45 pm

thanks, looked at Bellway, Beazley, Bovis, Barret, Redrow, Taylor Wimpey, and they all have similar yields, growth and Broker forecasts. Why Bellway over the others?

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Re: Housebuilders

#275218

Postby AsleepInYorkshire » January 4th, 2020, 8:51 pm

MickR wrote:thanks, looked at Bellway, Beazley, Bovis, Barret, Redrow, Taylor Wimpey, and they all have similar yields, growth and Broker forecasts. Why Bellway over the others?

"Kerb appeal"

AiYn'U

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Re: Housebuilders

#275243

Postby TahiPanasDua » January 5th, 2020, 4:53 am

MickR wrote:Hi

I've invested in Persimmon for a number of years, which have done me well so far.


thanks

Mick


Mick,

I'm no expert but house builders doing well over the past few years was to be expected. We have experienced around 10 years of economic expansion and house builders tend to follow the economical cycle for fairly obvious reasons. People invest in houses when they are feeling optimistic.

Being lazy I haven't checked but I seem to remember builders struggled badly after the financial crisis.

Like everyone else, I have no idea when the current cycle will come to an end but end it will. Buying builders now will not be a problem in the long term if you are prepared to sit out the down phase drawing dividends.

As you may already have guessed, I wouldn't buy builders right now but better informed readers might advise you differently.

Good luck.

TP2.

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Re: Housebuilders

#275257

Postby scrumpyjack » January 5th, 2020, 9:41 am

Builders struggled badly in the last recession because they had high borrowings and, as land prices fell, unrealised losses on their land banks. Barratt nearly went bust. As those land bank losses fed through to the P&L they reported heavy losses (wouldn’t happen with oil companies as they use current cost accounting so falls in the value of their raw material don’t hit the P&L!)

As a result since them builders have been much more careful about borrowing to much or over expanding – hence returning lots of cash to shareholders as profits recovered.

I am very overweight builders, having bought a lot of Barratt and Persimmon after the financial collapse as I thought they would survive and the land bank losses would work through, as indeed happened. I wouldn’t therefore buy any more but neither am I a seller.

On a long term view their profits margins are unsustainably high, but this is reflected in the low P/Es. Many analysts focus on the net asset value of builders and so think some, especially Persimmon, are overvalued at present as the share price is so far ahead of NAV. They don’t take this approach with other companies and I think the barriers to entry in the building trade are now far higher than they used to be The whole planning and regulatory framework makes it much harder for small builders to compete than it used to be.

There is still a significant housing shortage so my guess is they will continue to make good profits for quite a while yet, but won’t increase profits from current levels significantly. Strong hold.

AsleepInYorkshire
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Re: Housebuilders

#275261

Postby AsleepInYorkshire » January 5th, 2020, 10:04 am

scrumpyjack wrote:Builders struggled badly in the last recession because they had high borrowings and, as land prices fell, unrealised losses on their land banks. Barratt nearly went bust. As those land bank losses fed through to the P&L they reported heavy losses (wouldn’t happen with oil companies as they use current cost accounting so falls in the value of their raw material don’t hit the P&L!)

As a result since them builders have been much more careful about borrowing to much or over expanding – hence returning lots of cash to shareholders as profits recovered.

I am very overweight builders, having bought a lot of Barratt and Persimmon after the financial collapse as I thought they would survive and the land bank losses would work through, as indeed happened. I wouldn’t therefore buy any more but neither am I a seller.

On a long term view their profits margins are unsustainably high, but this is reflected in the low P/Es. Many analysts focus on the net asset value of builders and so think some, especially Persimmon, are overvalued at present as the share price is so far ahead of NAV. They don’t take this approach with other companies and I think the barriers to entry in the building trade are now far higher than they used to be The whole planning and regulatory framework makes it much harder for small builders to compete than it used to be.

There is still a significant housing shortage so my guess is they will continue to make good profits for quite a while yet, but won’t increase profits from current levels significantly. Strong hold.

Excellent post summarising very accurately in my humble opinion. I'd like if I may to augment one small point. Government is aware that there is a reliance on a few large nationals which in isolation when viewing the industry does expose the industry to an "eggs and basket" concern. They are backing small and new house builders by a form of indemnification I believe. I don't often get involved in the funding requirements for building new homes and am no more than "aware of" of this "facility".

As time progress' it may be one of the underlying threats to the industry will be an increase in their cost base. However, as Scumpy has already said the debt levels are not a significant threat albeit the price to book value of some is looking perhaps "top heavy" and a stock purchase now would have to accept that risk accordingly.

I like Bellway as I feel they can still expand further and they do look to be controlling their balance sheet efficiently. I also simply like their "kerb appeal". If I recall correctly they are also a five star builder which suggests they are in control of the their quality too.

AiYn'U (Don't have any Bellway stock)

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Re: Housebuilders

#275262

Postby tjh290633 » January 5th, 2020, 10:09 am

Taylor Wimpey was one of the distressed shares that I decided to hold for recovery, after the 2008-9 hiatus. My reckoning was that housebuilders would never lack for demand at a time of population increase.

Prior to that, the dividends had been 15.75p with a share price above the £3 level. Dividends resumed in 2012 after a 3 year drought, initially at 0.38p with a share price of about 50p, having been much lower. Special dividends began in 2014 at 1.54p and now we have annual specials of 11p expected, on top of normal dividends of 7.64p. Share price just below £2 at the moment.

I suspect that there may have to be the introduction of more factory production of prefabricated elements of houses, to meet demand. Back in the 1940s, the Hawker Siddeley prefabs and the Cornish Unit Houses helped get the level of housebuilding up to the required level. When you see "Park Homes" being delivered on the backs of lorries, I often wonder why this is not used for more permanent housing. Prefabs were originally conceived as temporary, yet many lasted for a long time. There has to be scope for doing something on these lines.

TJH

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Re: Housebuilders

#275616

Postby midgesgalore » January 6th, 2020, 11:14 pm

I have been a a holder of Bellway (BWY) since April 2006.
This was not a conscious HYP share at that time since it was one of the first stocks I purchased with my new online broker and purchased with safety in mind. I also bought a small holding in Henry Boot at the same time - as a company doing more parcelled up land deals to house builders, rather than builders themselves.

My main driver was I could see lots of Bellway houses springing up in the brown fields close by and the build quality looked well finished for the money.
Since I was reading a lot of Peter Lynch testimonies and books at the time I bought BWY for the familiarity and popularity of the product.

The dividends in the last good financial year was 43.125p total and final dividend paid Jan 16th, 2008.
I held on during the financial crisis where the least total dividend was 9p (3p + 6p) and paid Jan 20th, 2010.
It took until Jan 14th, 2015 before the dividends caught up and exceeded 52p (16p + 36p) the 2008 payment

My portfolio has two house-builder related stocks, BWY and Henry Boot (BOOT {previously BHY}) as stated above.
BOOT has been a dud and should have been given the boot years ago but I see it has rallied a bit in the last year, more so since the last general election. Therefore I concentrated my efforts on BWY in 2015 (more to do with availability of finances) as my house builder and now targeting it as a HYP share. I am not disappointed with the contribution of income of BWY and was also aware of the much reduced debt in the balance sheet.

Since it is now 2020, in hindsight, it is OBVS not as good an income generator as persimmon but not bad either ;)


midgesgalore

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Re: Housebuilders

#275951

Postby gryffron » January 8th, 2020, 1:16 pm

tjh290633 wrote:I suspect that there may have to be the introduction of more factory production of prefabricated elements of houses, to meet demand. Back in the 1940s, the Hawker Siddeley prefabs and the Cornish Unit Houses helped get the level of housebuilding up to the required level. When you see "Park Homes" being delivered on the backs of lorries, I often wonder why this is not used for more permanent housing. Prefabs were originally conceived as temporary, yet many lasted for a long time. There has to be scope for doing something on these lines.

Technically becoming quite possible these days. But culturally unpopular in the UK, where people want bricks and mortar. Not to mention the difficulties with mortgages. So I think you'd have a lot of difficulty selling them to a sceptical public. Especially as the huge bulk of the cost is land anyway, so they wouldn't be significantly cheaper.

There are still many prefabs in parts of rural Lincolnshire which are perfectly nice houses, but changing hands for very low prices because you can't get a mortgage (no foundations).

Gryff

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Re: Housebuilders

#275989

Postby Bouleversee » January 8th, 2020, 5:17 pm

Despite the knock to its reputation last year, I'd still stick with PSN which has done far better for me than any of my other builders; huge increase in s.p. and huge amount of dividends with more promised for the next couple of years, after which things may tail off a bit. I think the quality problems which arose, which I don't think were exclusive to them, were due to the shortage of skilled workers to match the increase in demand due to Help to Buy and PSN are making efforts to avoid such problems in future. House prices are forecast to increase less in the south of England than elsewhere so that should be borne in mind. I can't believe I am still making a small loss on my TW holding after some years compared with a s.p. gain of 358% on PSN. I don't expect either growth or dividends to continue at the same rate and I have quite a lot in this sector so doubt I will be adding but won't be reducing either as it seems as good a place to be as any with an increasing population needing to be housed.

I believe Legal and General are now involved in housebuilding with, I think, prefabricated components as opposed to pre-fabs themselves and that could be a good move that might boost my small holding there. Others may know more about that and will correct me if I am wrong.

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Re: Housebuilders

#275992

Postby monabri » January 8th, 2020, 5:25 pm

Legal & General ..housebuilders..a little bit of discussion on the subject here;

viewtopic.php?p=241871#p241871

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Re: Housebuilders

#276000

Postby Dod101 » January 8th, 2020, 5:58 pm

I have held Henry Boot for the last couple of years and have done fine by them. They are conservative and low profile. M J Gleeson I bought last year when the CEO got the boot (not the Boot) apparently for being too greedy. They have done well for me since.

I think that Persimmon's quality problems were much worse for them than for other builders (although I have no direct experience) The culture was all wrong. That is clear from the ridiculous rewards for their CEO and his attitude to it when it was publicly ridiculed. The directors were more interested in getting rewards for themselves and their shareholders than worrying about build quality, because they were desperate to 'finish' and hand over homes before they were ready, in order to meet bonus targets. I would never hold shares in them irrespective of the shareholder rewards.

Dod

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Re: Housebuilders

#276009

Postby Bouleversee » January 8th, 2020, 6:45 pm

Dod101 wrote:I have held Henry Boot for the last couple of years and have done fine by them. They are conservative and low profile. M J Gleeson I bought last year when the CEO got the boot (not the Boot) apparently for being too greedy. They have done well for me since.

I think that Persimmon's quality problems were much worse for them than for other builders (although I have no direct experience) The culture was all wrong. That is clear from the ridiculous rewards for their CEO and his attitude to it when it was publicly ridiculed. The directors were more interested in getting rewards for themselves and their shareholders than worrying about build quality, because they were desperate to 'finish' and hand over homes before they were ready, in order to meet bonus targets. I would never hold shares in them irrespective of the shareholder rewards.

Dod


But so far as I can gather, the new broom is doing his best to sweep clean. I bought when they were considered to be a quality company before any of those awful problems emerged and indeed before the shareholder rewards materialised. I wouldn't want to be involved either if the previous greedy so-and-so hadn't been given the heave-ho and efforts were not now being made to rectify things and stop them happening again. If things don't improve I will certainly consider getting out. Much will depend on whether they can recruit skilled labour now that fewer Poles etc. are coming here. However, the dodgy leaseholds imposed by TW were just as off-putting.

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Re: Housebuilders

#276035

Postby Bouleversee » January 8th, 2020, 8:19 pm

Having now read the linked articles re Legal and General, I noticed adverse comments about other builders including TW and Redrow, confirming my impression that problems occur in most building work (how many of you have had any alterations done without there being an extensive snags list at the end), most if not all down to the standard of workmanship rather than the ethics of the company, and it strikes me that L&G may be onto a good thing once they have ironed out production problems and are able to turn out standardised perfect modules which fit together without problems. Time will tell but they have performed rather better than Aviva, my other insurance holding, which is showing a loss for me and doesn't seem to have much going for it at present. Perhaps I should ditch them and buy more Legal and General.

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Re: Housebuilders

#276077

Postby Dod101 » January 9th, 2020, 12:29 am

Bouleversee

I should keep quiet probably but I must say that I do not think that the culture of a company can be changed simply by changing the CEO.

I think that Aviva, like RSA, has so much baggage that it is difficult to see a way through. L & G on the other hand has been quite different for the last 50 years. They are quietly confident, get on with their business, and make no noise, and have no baggage to speak of.

For long term investment there is no doubt in my mind that L & G are the better company. No matter what the current metrics might be.

Dod

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Re: Housebuilders

#276181

Postby Bouleversee » January 9th, 2020, 1:47 pm

Dod101 wrote:Bouleversee

I should keep quiet probably but I must say that I do not think that the culture of a company can be changed simply by changing the CEO.

I think that Aviva, like RSA, has so much baggage that it is difficult to see a way through. L & G on the other hand has been quite different for the last 50 years. They are quietly confident, get on with their business, and make no noise, and have no baggage to speak of.

For long term investment there is no doubt in my mind that L & G are the better company. No matter what the current metrics might be.

Dod


So what does change the culture of a company, then? The culture of GEC changed remarkably when Weinstock departed and I think the culture of M&S has changed for the worse over the years. I'd like to think that fresh blood can change it for the better as well, though there is obviously no guarantee that a newcomer will do so. At any rate, I'm prepared to give the new boss at PSN the benefit of the doubt for the time being.

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Re: Housebuilders

#276194

Postby Dod101 » January 9th, 2020, 3:11 pm

It is very difficult to change the culture of a company, club or anything else simply because the current incumbents like to recruit replacements who are likely to be 'one of us'.

Clearly it can be done and GEC is a prime example but I do not know of many others. GEC was dominated not by a collegiate board though (which most boards are) but by one individual in the form of Arnold Weinstock. When he went they found another single minded guy in the form of George Simpson who thought he was at least as capable and clever as Weinstock but found it altogether more difficult than he had anticipated and he clearly did not have the iron will or self discipline of Weinstock. So the conservative culture changed but that was because of the domination by strong willed individuals, not a Board.

But for a company like M & S which is now pretty much a British institution with loyal staff who have clearly been with them forever, it is extremely difficult to change. I think they own most of their sites and that in itself makes change difficult. Certainly the two traditional stores that are within about 50 miles of where I live have not changed in my lifetime and that goes back to WW2. In fact I think my mother were she able to take a look at them today would still recognise them. The culture is engrained not just in the directors (in fact maybe less now in them) but in the staff at all levels. That can often be very helpful but I am not sure that it actually is for M & S.

Dod


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