Marktime, I learnt a long time ago that being 'too clever' in predicting the future leads to poor investment decisions.
Berkeley Group is one of the easier shares to work out as the directors specify in their Annual Report what is going on. At around 4,000p per share the market is building in to the share price no growth whatsoever. We know (because the Annual Report told us) that next year will be worse than the current year, so growth will be negative. BUT, long term growth (which is what share prices are based in) will still be highly positive. So even at 4,200p this share is a hold.
Now, I don't think that many investors will understand this and when the company announces reduced profits next year (despite the fact that we were warned) the share price will come tumbling down. This, of course, will give us an amazing buying opportunity.
It's worth thinking through that RM don't really cover new build, which is performing radically differently from the secondary market.
Also stamp duty is choking off transactions at the upper end of the market. Say a property at £1m (not a palace, just a pleasant family home in London, SE, south) will incur ca £60k transaction overheads (SD, estate agent fees, solicitor fees, removal) which has to be funded out of spare savings. So as upper end transactions don't occur (notably in central London) then clearly the average price basket falls. Does this mean all prices are falling? A: not necessarily. You might want to think through if London is imploding, why are Telford doing so well? The problem is less about price & more that London site development is perforce always lumpy. Having just cleared a swathe of jv developments at asp ca £1m ea, BRK asp will fall until similar developments come on stream again (which they will in about 18-24 months).
I don't know when the upper end stalled transactions come back on stream again, but the longer they are choked off, the more this builds up latent pricing pressure. At some point they return with a vengeance - as indeed played out around 09.
In April 2017 the Rightmove index had the average London house price peaking at £649K ... presumably the level at which BKG were making its monster first half profits. The same index just released for Dec 2017 shows the average London house price has fallen to £605K. On the 4,200 homes BKG hope to sell every year that takes £210M off the bottom line.
A 3% fall in prices next year would trim off another £85M profit.
Then imagine the slowing market means a 5% reduction in forward sales (why buy early in a falling market) while costs remains level ... might we be at the foothills of a property market "cycle".
I agree that the accumulated BKG cash pile makes the forward dividend / buy back promise a sustainable prospect. Or makes them a target?
OK, I will stop bleating on now. Make your own minds up and good luck.
Well marktime1231, at least we agree on Bitcoin. Think you were not very generous to Berkeley in your detail as pointing out areas like forward sales and cash decline without mentioning the massive rise in cash reserves.
Having topped up I will hold, already a profit of 5% today which I know can disappear with profit takers Monday but I think longer term I will be pleased to hold.
Unbelievably good first half results ... £533M pre-tax profit on revenues of £1,607M in just 6 months; and has May just given London's role as the destination for cash buyers a future?
Some small print worth reading in the results announcement ... 17/18 first half was the peak already, expect under £600M gross profit for the whole of 18/19 (see my previous post) eg a 30-40% decline; cash due on forward sales down 10% so far (see my previous post). Lot of commentary about affordable housing which is not where BKG make 33% margin.
Trading volumes are thin, the sp has jumped today without mention of a super-dividend to go with super results and a super cash pile. Well done to those of you who held on, I have missed out on a 10% premium. I am unmoved though, at best this was a Hold and in my dim view everyone should have an exit lined up. Like Pidgley and Perrins have.
this report via the DT today seems to agree with my fears:
"Research by Barbour ABI found that housebuilding has stalled after a summer boom, as the value of contracts to build homes fell by half to £1.6bn in October, compared to £3.2bn last year.
Meanwhile, the number of planning applications lodged to build new homes fell by a third in the third quarter of this year at 7,133, down from 10,338 a year ago."
The budget measures aimed at encouraging low end housing association (council) type homes may counter this downturn, not much help at BKG though who are all about executive dormitory town homes and premium city centre flats. Stimulating the bottom of the market with cheaper new builds will simply make owner occupiers out of generation rent, with less effect the higher up the ladder you go.
BKG financials to Apr 2017 will include top end of the market prices cooling, reduced new build activity and fewer advance sales, and maybe the downside of any surge to beat last year's deadlines for buy-to-let and stamp duty changes.
I would not be surprised if profits slimmed to £500M with flat outlook, management will repeat it has confidence in returning target value to shareholders by whenever. Much of which is already in the bank, and the rest can be achieved from maintaining dividends at £2 pa ... not clever enough to know whether it would be sustainable from reduced cash flow.
I could be completely wrong, but I am following my own conviction that we have seen the best of times. It would be a surprise but an announcement of unexpectedly and extremely good continuing financials and an aggressive period of buy-backing and we might see £39 again yet.
Never too late to sell while you are just ahead. You have had some nice dividends along the way. That is the nice thing about BKG, it has been such a good value and income buy but has enjoyed little coverage compared to the likes of Barratt and Persimmon ... Pidgley is not everyone's cup of tea maybe?
A whiff of a sell out or merger with ... might just make a winner out of you, and a fool out of me.
The dominant focus of BKG's lucrative business has been stupidly expensive flats in prime London. £812M profit on sales revenues of £2,723M to April 2017 is extreme. We have seen its sp develop from £24 to £39 over the year as a result, fuelled by super dividends and then buy backs.
Demand for such property is surely sliding, accelerated by stamp duty and added pressures on landlords - perhaps boosting activity last FY to beat deadlines. If we lose or fear to lose a tranche of the international bankers and related financial services to Brexit, and we apply more scrutiny to other overseas especially cash buyers, the market will slump ... judging by top end house price settlement we are seeing that already. Other developers less hitched to the prime London market are still (pretending to be?) buoyant, but there has been cooling of prices in the dormitories around London too.
BKGs costs will not fall but its return from developments on former gasometer sites or more houses in the mix or moving further out from prime London will not be so high ... the financial effects will come through, things have to retreat. BKG is debt free and has a terrific land bank, but it can't make money for its shareholders building premium property no-one wants or can afford to buy.
Pidgley and Perrins have both sold big stakes more than once this year ... Pidgley has offloaded 2.5 million shares at prices £31.10 - £35.75 - £38.50 in Apr, Sep, Oct respectively. Sold a third of his stake, and maybe more disposals to come. Why do you think that is? Getting to the end of his lollipop, I think he is now 70, and banking the proceeds while his cleverly introduced buy-back programme has pushed the sp to a high.
Nearly three years of actively trading this stock, I like BKG and its strong fundamentals, but a change in its market, financial performance and its ownership / management is on the cards. All very well saying it is trading on a p/e of just 8 today, but over the next couple of cycles if you reduce sales 15% and discount the margin 5-10% back to historic levels then things look radically different.
I sold at £38.64 last month, sorry to have missed the £39+ peak but happy with the gain from £28.85. I will be back, when the dust has settled and the sp looks clearly good value again, at ... £33 maybe?
"September's been a month of two halves. Losing around 250 points in the space of a fortnight was not a great start, but, as we've seen all summer, buyers are never far away, even with the very real possibility of nuclear Armageddon.Up from a ..."
Warren, "We always sell our shares in a company that's got a good future and doing well"
I sold my shares in the HSBC S&P 500 tracker that you and I both owned a while back and were the only posters on the board. Do you still have it? Congrats if you do. It must have added 2-300% since I exited.
One thing about director buys and sells. There are many, many reasons why someone might sell a share:
* Profit taking when they think the company is due a difficult time.
* Profit taking when they expect the share price will have a difficult time even though all is well at the company.
* Raising cash because they have a large tax bill, divorce settlement, school and/or college fees to meet, maybe all three
* Maybe a family member needs urgent and expensive drugs and surgery and they've decided to go private with the best money can buy.
* Perhaps their island and yacht just got smashed by a hurricane and they found their insurance policy has lapsed.
* Maybe they want to buy that vintage Ferrari they have always promised themselves.
* Perhaps their financial advisor has said thy should diversify theirr wealth and being a builder you thought you should go along with the professional advice ..
I could go on and on. But what you really need to know is:
and his hare brained Help to Buy scheme is making everybody employed by and/or owning the major housebuilders' shares rich for no effort, not to mention the very beneficial impacts on existing homeowners.
This cannot go on, and Phil the Spreadsheet will most likely curb this scheme in favour of the LISA product, or impose a windfall tax.
Hence the Directors getting out now, as they more than anybody can see which way the wind is blowing.
Two good things the PM has done amongst the poo is fire George, and neutralize Boris.
I was worried that the chairman had sold £26M worth of shares, and was thinking of profit taking myself, but I guess as its only one eighth of his holding we can forgive him for taking out some cash. BKG and the other builders do still seem like a good bet.
I tend to agree, M* had an article on housebuilders (link below) and so i decided reluctantly to flog this and a raft of others for a nice percentage increase - have put the proceeds now into a global income fund (ex USA which is horribly overvalued imho) - got a wodge now allocated for the USA marked if it falls http://www.morningstar.co.uk/uk/news/160707/housebuilder-stocks-rise-45.aspx
The div is now near a one day trading range, so this does make the decision a little easier. Do you
1, Sell and take the profit (>50% for me) and have cash available for any market crash that may happen in Sept/Oct
2. Take the div, we can still have £5,000 divis free of additional tax and then
3. Hold on to the shares for possible further future gain.
Personally, I am getting increasingly nervous about the direction of the markets when people get back to work after the summer hols.
So BKG clearly serious about their buy back programme which has accelerated, and continuing at this rate will remove about 10% of the stock into Treasury over the next 3 years. I assume it is on that basis broker sentiment and sp have continued to surge, next stop £38-39.
Unfortunately the consequence for income investors, who prefer returns in the bank rather than on paper in the sp, is that dividends have been cut sharply. At this rate less than 3%.
BKG remains in excellent financial health, it is more likely than not to make the profits to achieve its intended returns plan. But, is it immune from a cooler housing market in London and the South East?
This will need serious thought on the run up to ex-div 24 Aug, at what price might I sell and will there be a re-buy opportunity?
That looks to have been a sensible play Rhigos, I am in a similar place except my remaining holding is protected from CGT in an ISA. So I have something similar in mind to you, followed by a top up when BKG look like a bargain again.
But, not just yet, I am now a believer that the sp could add another £1 before ex-div. Not the only one, someone spent millions buying at over £36 yesterday on a single trade.
I sold 25% of my BKG shares yesterday when limit order met at a little over 3595. SP of course rose after sale so I will call it a cunning plan to increase price of my remaining 75%. In fact I top sliced because they were getting near all time high and had suffered earlier this year by being overweight in construction (also have PSN, BDEV, GFRD, WJG and REITs BLND, ESP and DIGS).
I have held BKY for about 30 months and yesterday's sale realised a CG after costs of 32.2% and total return of 46.0% including next div as sold XD. A very pleasing return IMO over a medium term period. I am not planning to sell any more BKG this year.
another mistaken prediction by me, the BKG buy back programme is continuing even though we are on 'hooks for the dividend and few wanting to sell. So maybe the share price is going to spike all the way to £37-38 as per HSBC's prophecy.
Might be forced into a reluctant sale after all. Or trim and buy back afterwards. I would miss not having some BKG in my portfolio, they have been my best winners. You are not supposed to invest in sentiment though are you.
Apparently there's a rumour going the rounds that the Help to Buy scheme is under review. I find it hard to believe that the government would want to do anything to make it even more difficult for first time buyers to get a roof over their heads as this would surely be the final nail in Theresa May's carefully self-constructed electoral coffin. But even if they do foreign investors will no doubt continue to mop up all the available property leaving loads of empty towers as a monument to government folly. In short imho the market reaction is overdone.
BKG are rated under £22 still by Credit Suisse even after June's stellar financial performance announcement but I wouldn't hold for that re-entry point if I were you. There is a sense that acceleration in BKG's performance is easing - "headwinds" - and there has been some notable profit taking over £35 which is pretty much an all time high and may be the sustainable sp for now.
While deciding what the next dividend will be - announcement 17 Aug, ex-div 25 Aug, pay day 15 Sep - the buy back may be suspended so you might see a short term lull in sp.
BKG still needs to do something, though, other than sitting on cash and passing out good dividends while on a p/e <10 and with net assets greater than market cap, to defend it from becoming a massive target. Pidgeley may not be ready to retire just yet - watch for him offloading though - and that in my mind means a share buy back programme will continue to support the sp.
The government's belated concern over the trade in freehold interests has been aimed so far at selling houses on leasehold tenure with unfair ground rents - yes, doesn't that sound ridiculous - as perpetrated so far in about 100,000 cases by the likes of Redrow, Taylor Wimpey, Bovis, Bellway and Persimmon. BKG not so much if at all.
Government may also turn its attention in future to the exploitation of freehold control over leashold blocks built by the likes of BKG, but successive governments have turned a blind eye to the problems of ground rents, bullying freeholders and rip off property managers. Housing ministers come and go (remember the awful Grant Shapps?), and so do politicial donations by the beneficiaries of massive property portfolios.
Pidgley has been quoted in the past as being open to new forms of housing tenure ... his brand image took a massive hit in 2011 and someone had to cough up around £1M on the eve of litigation when his St George Wharf complex opposite Westminster got into management difficulties - the manager/ground rent grazer were exploiting residents (including the likes of John Major) via the service charge to the max. with things like excessive insurance commissions and were involved in a very public compensation battle.
At the time I thought that meant he was signalling support for the enactment of CLRA 2002, which allows for a new form of tenure called Commonhold through which blocks of leasehold flats escape exploitation by companies taking freehold interests off the developers. That stakeholding ownership model is pretty much how the rest of the world does things, but the UK remains a feudal state when it comes to property.
Do not factor this in for the near term though, Commonhold has been ready but not en-acted for 15 years already.
In the meantime BKG earn about £100M pa selling on freehold portfolios to the likes of Lord Whassisname and ultimately their yield is securitised to our pension funds.
FTSE100 re-entry doesn't bring the automatic boost it used to, I don't think so anyway, but it will certainly sharpen the coverage by major brokers and may induce a correction in the out-of-step negative forecasts from the likes of Credit Suisse.
When BKG was trading under £28 it looked to be a good decision to balance dividends with a buy back programme to boost the share price. At that time I thought BKG was fair value up to £33, since when they have come in with even stronger earnings and the price has grown to £35 today ... most recently boosted I suspect because of an anticipated September dividend of maybe 80p; and the likes of HSBC promoting £37-38.
We are still in p/e < 10 territory even if forward earnings are cut 25% by a quieter London market and by a loss of income from selling freehold interests to ground rent exploiters.
So while BKG already has a super land bank and no debt to speak of I don't know if there is a better way to deliver shareholder value ... restoring dividends to about the 6% level would be welcome, beyond which I think BKG should continue to hoover up their own stock while it is trading below fair value ... but what level is that?
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