A possible PYAD share?

[cshfool2]

I put this here as if you half close your eyes, squint a bit and put your head on one side like paddington it could just about be called “company analysis.” Apologies for misposting if that’s wrong.

Anyway back in the long long ago a certain TMFPyad used to write interestingly and pungently on value shares, one of Stephen Blands’ many ideas being based on a certain type of deep value share called a PYAD. I can barely remember all the key metrics but it was something like :

PE ratio 2/3 or less of FTSE (P)

Yield 2/3 greater than the FTSE (Y)

Assets – current price less than the Book value of the share (A)

Debt – little or no debt preferably net Cash (D)

There were a number of other tests such as adequate size – greater than £100m – call it £400m market capitalization now? A forecast earnings per share increase 20% or more than the current earnings – in order to drive the price, and a lack of overseas doubtfulness where perhaps managerial and political ethical and fiduciary standards were not all they could be. I think it rhymed with pongo --as a smell test. Directorspeak should also be positive.

Anyway the last two of the PYAD filters (A,D) are rarely found in combination with some occasional exceptions one of which could currently be Bellway plc the housebuilders.

Bellway is currently sitting at net cash (£160m) and the end of year cash balance is also forecast to be positive at around £200m. So let’s tick the “D” filter, ie no D – the reasoning is that companies that go bust often tend do so because of debt.

Currently trading at around 2400p, close to pandemic levels, per share the book value (mainly land) is approx. 2778p (IC figures) – a useful discount from book value also expressed as a price to tangible book ratio of 2400/2778 = 0.85 – perhaps not a stonking book value bargain, but has been down to as little as 2070 recently and may be so again. House-builders do sometimes trade below book value and some old lags may remember that discount can persist for a while, but it’s not hugely common. (discuss) so lets approve the “A” filter .

Market cap is about £3bn (at 2400p) which seems more than adequate. Passed.

Currently the Bellway PE ratio is quoted on Yahoo at 7.2 which seems about half the FT250 of 15.1 (IC figures) or 14.6 FT100 although though no doubt these are calculated differently so caveat emptor as usual.

Similarly the yield is given as 5.3% which is about double that of the FTSE250 of which Bellway is a member, and is about 47% more than the FTSE100 at 3.6%. Anyway these two metrics historically are typically easy to find in value type shares, the difficult ones to pass are net cash, and price below tangible book.

The director-speak reads positively to me, and Mr Honeyman has put his Bellway divs where his mouth is with a useful 28.6% increase in the interim dividend from 35p to 45p -see the recent trading update on the Bellway investors website.

The one question mark I do have is that since it seems broker forecasts are not as easily available as they once were were (to me at least) and I would be interested to know what the consensus is for 1 year out, looking for 20% or more of course. Sales look to be about 10% up on prices broadly flat – so that may not hit the PYAD target. Of course all the builders have been hit by the fallout from the Grenfell situation but it seems to me that Bellway has enough put aside (discuss) with current provisions and supplier clawbacks.

Otherwise it does seem to me that this is a possible PYAD share –– this is the first I’ve seen for many a long year though since Refs died my analysis has become less thorough. Anyway I have some of these and will hold for a few years I expect while the divs roll in.

Due acknowledgement for the framework of ideas cited here is given to Mr Stephen Bland who invented the term PYAD on the greatly missed TMF value board and his amusing and direct value articles.

csh

[scrumpyjack]

Yes all those metrics sound very attractive and I have large holdings of builders shares (Barratt and Persimmon, but not Bellway).
The trouble is that when a share price is so low as to trigger those metrics, there is a reason. Mr Market sees BIG trouble ahead. In this case a substantial fall in house prices. If that does happen, housebuilder shares will drop and those dividends will be history.

Of course Mr Market may well be wrong, and personally I think builders shares are very attractive at present, but that is just my view. The market remembers what happened last time (2008/9). But also what happens each time house prices fall sharply is that whilst there is a very difficult period for builders, land prices also fall sharply so that once they have worked their way through their land banks, if they survive, they buy plots at much lower cost and their margins recover. The market always seems to forget that bit!

[AsleepInYorkshire]

viewtopic.php?f=33&t=34882&hilit=bellway

AiY(D)

[AsleepInYorkshire]

In an effort to be helpful I've put this link up.

I'm not going to get into a debate about pyad value or the like. I am simply trying to be helpful.

This stock may tick some value criterion and some of you may wish to look it over.

Asset rich
Cash rich
No debt
Very profitable
Yield has recently been lowered by the board but is still reasonable. The surplus money from the reduced dividend is being reinvested to grow the company organically.
Free cashflow is excellent
Strong management teams throughout the business

viewtopic.php?f=33&t=34845&hilit=gleeson

Their business model differs from other national home builders and I have to say over the last three years since the exit of Jolyon Harrison as their CEO at that time, they have focused more upon their quality and customer satisfaction. On a national level the only other builder that they compete with is Keepmoat. Ironically, and this is not a made up statistic, where Gleeson are building within a five mile radius of a Keepmoat site their sales improve. The sort of competition Gleeson will thoroughly enjoy. Gleeson do not feel that the withdrawal of government support for purchasing from new housebuilders will have a huge negative impact upon their business.

AiY(D)

[simoan]

Yes all those metrics sound very attractive and I have large holdings of builders shares (Barratt and Persimmon, but not Bellway).
The trouble is that when a share price is so low as to trigger those metrics, there is a reason. Mr Market sees BIG trouble ahead. In this case a substantial fall in house prices. If that does happen, housebuilder shares will drop and those dividends will be history.

Of course Mr Market may well be wrong, and personally I think builders shares are very attractive at present, but that is just my view. The market remembers what happened last time (2008/9). But also what happens each time house prices fall sharply is that whilst there is a very difficult period for builders, land prices also fall sharply so that once they have worked their way through their land banks, if they survive, they buy plots at much lower cost and their margins recover. The market always seems to forget that bit!

I’ve just run a quick PYAD screen and you may also want to take a look at Crest Nicholson which is probably slightly better value, if anything. Quite a few mining companies (FXPO, HOC, CEY, CAPD) and financials (HSBA, NWG, STB, INVP). The conventional wisdom is to only buy cyclical companies such as these when earnings have collapsed (high PER) and the dividend has been chopped.

All the best, Si

[scrumpyjack]

The conventional wisdom is to only buy cyclical companies such as these when earnings have collapsed (high PER) and the dividend has been chopped.

All the best, Si

Yes that certainly worked for me. I picked up PSN for 305p and Barratt as low as 47p and of course have had many times that back in dividends alone.
You would think the market would eventually come to its senses, but as the old saying goes - it can stay irrational longer than you can stay solvent!

[Dod101]

In an effort to be helpful I've put this link up.

I'm not going to get into a debate about pyad value or the like. I am simply trying to be helpful.

This stock may tick some value criterion and some of you may wish to look it over.

Asset rich
Cash rich
No debt
Very profitable
Yield has recently been lowered by the board but is still reasonable. The surplus money from the reduced dividend is being reinvested to grow the company organically.
Free cashflow is excellent
Strong management teams throughout the business

viewtopic.php?f=33&t=34845&hilit=gleeson

Their business model differs from other national home builders and I have to say over the last three years since the exit of Jolyon Harrison as their CEO at that time, they have focused more upon their quality and customer satisfaction. On a national level the only other builder that they compete with is Keepmoat. Ironically, and this is not a made up statistic, where Gleeson are building within a five mile radius of a Keepmoat site their sales improve. The sort of competition Gleeson will thoroughly enjoy. Gleeson do not feel that the withdrawal of government support for purchasing from new housebuilders will have a huge negative impact upon their business.

AiY(D)

I like the business style of Gleeson but am well under water with this share. I think they have a results announcement soon and that may help the share price.

Dod

[cshfool2]

Many thanks for these notes especially for the insider note from industry insider AsleepinYorkshire and the note on cash flow is interesting. For some reason my Lemon search seems to have missed your write up as I did search for recent notes (or any) on BWY.

A quick glance at Crest Nicks seems to indicate (perhaps technical) losses last time though I see what you mean on p/book value for crst - a portfolio approach may have some merits - is it me or are broker forecasts harder to find now?

Si - thanks for your pyad screen test, can I ask what tool you're using for that?

FXPO is one I've noticed too if an end to war could be defined though arguably has some pongo factor, a PER of about 1.0 ish has attractions and maybe as they say worth a punt. If that is is investing!

I also own PSN in my HYP so am rather overweight builders - however I'm hoping the sector goes down more so I can make further purchases. If there's one thing that's even more annoying than a share that I like going down, it's one I like that goes up.

csh

[AsleepInYorkshire]

I like the business style of Gleeson but am well under water with this share. I think they have a results announcement soon and that may help the share price.

Dod

I'm aware that you hold this stock Dod. You've mentioned it previously. I cannot tell you why the stock has fallen so much. The two possibilities are the market doesn't feel they will do well when government new housing support is withdrawn or potential liabilities connected with legacy cladding issues. The latter seems to be from their days trading as a construction company I think. Actually a third is the market may believe Gleeson cannot pass inflationary costs onto their customers. However, they seem to be succeeding at this at the the moment.

I believe before autumn they will announce plans to scale up to 4,000 units per year over a five year period. Don't quote me though . They have exceeded forecast expectations this year. Keepmoat were purchased by a private equity company for £7bn(ish) iirc. Insiders own 6% of Gleeson stock.

I can't tell you what to do with your current stock, not my place. But I can't find a reason for the price to be quite as low as it is and unless someone can identify that I think there's plenty of upside to come over the next 5 years.

AiY(D)

[Newroad]

Hi Simoan.

Is your "Pyad screen" simple to run using publicly available tooling, or something more proprietary or complex?

Regards, Newroad

[Dod101]

I like the business style of Gleeson but am well under water with this share. I think they have a results announcement soon and that may help the share price.

Dod

I'm aware that you hold this stock Dod. You've mentioned it previously. I cannot tell you why the stock has fallen so much. The two possibilities are the market doesn't feel they will do well when government new housing support is withdrawn or potential liabilities connected with legacy cladding issues. The latter seems to be from their days trading as a construction company I think. Actually a third is the market may believe Gleeson cannot pass inflationary costs onto their customers. However, they seem to be succeeding at this at the the moment.

I believe before autumn they will announce plans to scale up to 4,000 units per year over a five year period. Don't quote me though . They have exceeded forecast expectations this year. Keepmoat were purchased by a private equity company for £7bn(ish) iirc. Insiders own 6% of Gleeson stock.

I can't tell you what to do with your current stock, not my place. But I can't find a reason for the price to be quite as low as it is and unless someone can identify that I think there's plenty of upside to come over the next 5 years.

AiY(D)

I have no intention of selling but it would be good to see some upward movement. They are run very conservatively and as you say seem to be meeting their targets. I also hold Henry Boot and have done quite well with them. They have similar features and again are conservatively run. They have a broader spread of businesses which may be helping them. I do not know if they would meet the filter’s mentioned though.
Dod

[AsleepInYorkshire]

Many thanks for these notes especially for the insider note from industry insider AsleepInYorkshire and the note on cash flow is interesting. For some reason my Lemon search seems to have missed your write up as I did search for recent notes (or any) on BWY.

You're welcome. Part of my skillset is to value land before purchase and to subsequently monitor and report on the commercial progress of sites. I favour Belllway not just because it looks cheap currently but because their new house types have robust kerb appeal. Many years ago Bryant Homes brought out a new range of homes. At the time they had incredible kerb appeal and the company sales soared. I recall at the time my Technical Director discussing the Bryant Homes site not less than a mile from one of our sites. Our houses looked distinctly crap in comparison. Redrow specialise in kerb appeal in a similar way to Bellway, but lack the same volume.

Whilst I am in no position to disagree with previous comments about the cyclical nature of house building, and indeed am in full agreement, Bellway's book value seems tempting. House builders have two assets. The Land they own and their employees. If they are managing their work in progress, which can be done easily through footfall figures in sales offices and conversions thereafter and they have a land bank purchased with margins built in at todays selling prices, they will be able to survive macro economic events outside of their control. If they begin to buy land at prices that assume house prices will rise they will eventually own land that isn't worth what they paid for it, when house prices fall. A slow down in sales doesn't always result in dramatic margin decreases. House builders respond quickly during such times and the pain is shared with their supply chain. They will also use such a period to remove dead wood from their workforce.

AiY(D)

[simoan]

A quick glance at Crest Nicks seems to indicate (perhaps technical) losses last time though I see what you mean on p/book value for crst - a portfolio approach may have some merits - is it me or are broker forecasts harder to find now?

Si - thanks for your pyad screen test, can I ask what tool you're using for that?

csh

According to Stockopedia (the tool I used) Crest has better value metrics than Bellway across the board I.e. lower P/S, P/E, P/FCF, P/TBV and higher yield. However. I’d still prefer Bellway for its quality and more consistent profitability if I had to choose between them.

All the best, Si

[simoan]

Hi Simoan.

Is your "Pyad screen" simple to run using publicly available tooling, or something more proprietary or complex?

Regards, Newroad

I subscribe to Stockopedia, so quickly set up a screen for companies with:

Mkt Cap > £100m
P: P/E < 10
Y: Yield > 3.8%
A: P/TBV < 1
D: Net Debt < 0

The data source used by Stockopedia is Refinitiv.
All the best, Si

[simoan]

Hi Simoan.

Is your "Pyad screen" simple to run using publicly available tooling, or something more proprietary or complex?

Regards, Newroad

I subscribe to Stockopedia, so quickly set up a screen for companies with:

Mkt Cap > £100m
P: P/E < 10
Y: Yield > 3.8%
A: P/TBV < 1
D: Net Debt < 0

The data source used by Stockopedia is Refinitiv.
All the best, Si

I've been playing around with the PYAD screen a bit this morning as there was nothing that really caught my eye in the original version - banks, miners and housebuilders are not really my thing - they nearly always look cheap! In particular, I'm happy to include intangible assets and go down to a £50m market cap, as long as the intangible assets have real value i.e. well known brands. The one company this turned up that looks interesting is Sanderson Design (SDG) where the intangible assets clearly have value since they generate licensing based revenue streams. As an example, this morning there was an announcement of a license renewal with Next.

The changes also threw up some more companies including two more housebuilders - Barratt and Vistry; two more financials - Jupiter FM and TP ICAP, and two more miners - Gem Diamonds and Atalaya. I also forgot to mention the two listed Georgian banks yesterday (TBC and Bank of Georgia) which qualify for the screen. But mentally I just discarded the latter!

[TheMotorcycleBoy]

Yes all those metrics sound very attractive and I have large holdings of builders shares (Barratt and Persimmon, but not Bellway).
The trouble is that when a share price is so low as to trigger those metrics, there is a reason. Mr Market sees BIG trouble ahead. In this case a substantial fall in house prices. If that does happen, housebuilder shares will drop and those dividends will be history.

Of course Mr Market may well be wrong, and personally I think builders shares are very attractive at present, but that is just my view. The market remembers what happened last time (2008/9). But also what happens each time house prices fall sharply is that whilst there is a very difficult period for builders, land prices also fall sharply so that once they have worked their way through their land banks, if they survive, they buy plots at much lower cost and their margins recover. The market always seems to forget that bit!

Isn't just the fact no-one is sure how long high inflation will persist, and hence the medium term view on bank rates? Sure for growth and tech, big rate rises this will reduce DCFs and hence valuations etc. but for builders and the housing market per se I'm guessing it will be an absolute killer. Not only would some default on higher monthly mortgage bills, but if higher rates result in a recession, then delinquency etc. rates rocket, and the housing market will suffer.

Perhaps that's what keeping MM up at night.

Matt

[cshfool2]

Latest trading update from Bellway is here:

https://www.bellwayplc.co.uk/media/2338 ... update.pdf

Highlights
 A sustained improvement in sales demand through the spring selling season compared to the
challenging trading conditions in the fourth quarter of calendar year 2022.

 The overall reservation rate averaged 190 per week (2022 – 253) and the cancellation rate
remained modest at 15% (2022 – 12%). The private reservation rate was 139 per week (2022 –
198).

 Overall, headline pricing has remained firm across our regions, although targeted incentives
continue to be used in certain parts of the country, to attract customers and secure reservations.

 Reflecting the strength of our land bank and ongoing cautious approach towards land investment
in the current uncertain market, 4,342 plots have been contracted since 1 August 2022 (2022 –
13,496 plots).

 Strong balance sheet with net cash of £42 million3 (5 June 2022 – £160 million). By the end of the
financial year, net cash is expected to increase to around £200 million3 (31 July 2022 – £245.3
million), providing continued resilience and strategic flexibility.

 The £100 million share buyback launched on 28 March 2023 is progresing well, with 1.87 million
shares purchased at a cost of £44.0 million during the period. [£23.53/share? csh]

 A lower, yet still sizeable forward order book, with a value of £1,710 million4 (2022 – £2,404
million), which comprises 6,172 homes (2022 – 8,152 homes).

 In line with previous guidance, the Group is on track to deliver full year volume output of around
11,000 homes (31 July 2022 – 11,198 homes) and the overall average selling price is expected to
be around £300,000 (31 July 2022 – £314,399).

and...

"The Board also continues to expect to maintain the total dividend for financial year 2023, in line with the prior year payment of 140.0p per share."

I'm not quite sure what "in line with" means sounds as though though it might be a bit more or a little bit less, but something in line anyway.

Still trading below tangible book value of about £28.00, (mainly Land which is listed on the builders balance sheets as a current asset) I see BWY was mentioned on Maynard Payton's podcast a wee while after I posted here and at the lower price of £18 last October, using a similar value screen to Stephens PYAD methods. Redrow may also have attractions on a similar basis.

What to do now? back to sleep probably, I might not tuck away any more unless it's less than £20 or so and just keep trousering the 6% or so dividend loot awhile. Steady as she slows.

csh

[TheMotorcycleBoy]

Well 5.5% had been telegraphed as being the terminal rate and had perhaps being priced in:

https://www.reuters.com/markets/rates-b ... 023-06-12/

however that's now been kiboshed by this announcement:

https://www.reuters.com/world/uk/uk-ann ... 023-06-13/

I see that the SP has reacted today.

Matt

[AsleepInYorkshire]

Latest trading update from Bellway is here:

https://www.bellwayplc.co.uk/media/2338 ... update.pdf

Highlights
 A sustained improvement in sales demand through the spring selling season compared to the
challenging trading conditions in the fourth quarter of calendar year 2022.

 The overall reservation rate averaged 190 per week (2022 – 253) and the cancellation rate
remained modest at 15% (2022 – 12%). The private reservation rate was 139 per week (2022 –
198).

 Overall, headline pricing has remained firm across our regions, although targeted incentives
continue to be used in certain parts of the country, to attract customers and secure reservations.

 Reflecting the strength of our land bank and ongoing cautious approach towards land investment
in the current uncertain market, 4,342 plots have been contracted since 1 August 2022 (2022 –
13,496 plots).

 Strong balance sheet with net cash of £42 million3 (5 June 2022 – £160 million). By the end of the
financial year, net cash is expected to increase to around £200 million3 (31 July 2022 – £245.3
million), providing continued resilience and strategic flexibility.

 The £100 million share buyback launched on 28 March 2023 is progresing well, with 1.87 million
shares purchased at a cost of £44.0 million during the period. [£23.53/share? csh]

 A lower, yet still sizeable forward order book, with a value of £1,710 million4 (2022 – £2,404
million), which comprises 6,172 homes (2022 – 8,152 homes).

 In line with previous guidance, the Group is on track to deliver full year volume output of around
11,000 homes (31 July 2022 – 11,198 homes) and the overall average selling price is expected to
be around £300,000 (31 July 2022 – £314,399).

and...

"The Board also continues to expect to maintain the total dividend for financial year 2023, in line with the prior year payment of 140.0p per share."

I'm not quite sure what "in line with" means sounds as though though it might be a bit more or a little bit less, but something in line anyway.

Still trading below tangible book value of about £28.00, (mainly Land which is listed on the builders balance sheets as a current asset) I see BWY was mentioned on Maynard Payton's podcast a wee while after I posted here and at the lower price of £18 last October, using a similar value screen to Stephens PYAD methods. Redrow may also have attractions on a similar basis.

What to do now? back to sleep probably, I might not tuck away any more unless it's less than £20 or so and just keep trousering the 6% or so dividend loot awhile. Steady as she slows.

csh

viewtopic.php?p=594906#p594906

Given our reduced order book, lower prevailing reservation rates and the uncertain interest rate environment, we continue to expect a lower year-on-year volume output.

Bellway is carrying £147m in debt, of which £144 is not due in less than 5 years. Bellway's statement that "we continue to expect a lower year-on-year volume output” is, for me, a little ambiguous. They've opened a door and, possibly, rather cynically, this could be a camouflaged profit reduction for year-end 2024. I wonder if the current stock price is being inflated by their share buyback scheme? I’ve been looking to increase my holdings in Bellway by 2-300%. However, the [possibly] inflated stock price caused by the share buyback scheme and today’s announcement has, for me, certainly closed that door for at least four to six months. Whilst their book value looks tempting I would like to see some numbers for year ending 2024 and the end of the share buy back before I dip in again. In the short term their may be further for this stock to fall and that potential opportunity is something I'm happy to wait for.

AiY(D)

[BullDog]

The yields on some builders shares looks enticing. But I've a feeling it's going to look more enticing yet via share prices falling back. And the yields are getting to the point that with likely falling revenues for a couple of years, the companies will be looking to cut the dividend.