AJ Bell press comment – 5 September 2022
“Cracks have appeared in the share prices of all of the UK’s major quoted housebuilders over the past year, but the result could be that a bit of value has started to appear and Vistry’s cash-and-shares swoop for Countryside may be one sign of that,” says AJ Bell investment director Russ Mould.
“Times may be about to get tougher for the builders and developers, but Countryside’s shares are trading on barely 1.3 times historic book value. At first glance, that prices in a lot of bad news and not much good, even if there remains a shortage of quality dwellings in the UK for people to buy.
|
|
Share price change, last 12 months |
|
Berkeley Group |
(28.0%) |
|
Redrow |
(31.9%) |
|
Vistry |
(37.5%) |
|
Crest Nicholson |
(40.8%) |
|
Taylor Wimpey |
(41.1%) |
|
Bellway |
(42.0%) |
|
Barratt Developments |
(45.8%) |
|
Countryside Partnerships |
(46.5%) |
|
Persimmon |
(50.2%) |
Source: Refinitiv data
“The whole UK housebuilding sector now trades on less than one times net asset value, a multiple which starts to price in a downturn, and they have balance sheets that are showing net cash in aggregate.
“That cash buffer may well prove very useful, especially as the cost-of-living crisis, rising interest rates and increased regulatory scrutiny in the wake of the Grenfell fire and the Government’s launch of its Pledge for Developers, could all weigh on demand and profits.
“But housebuilders’ shares have fallen sharply already, as if to price in much of this negative news, and they are much better prepared for the downturn this time than they were in 2008, when they were carrying a combined net debt of £4 billion, rather than the cash pile in excess of £4 billion they have now.
|
|
Historic |
2022E |
2022E |
2022E |
|
|
Price/NAV(x) |
PE (x) |
Dividend yield (%) |
Dividend cover (x) |
|
Crest Nicholson |
0.66 x |
5.2 x |
7.5% |
2.56 x |
|
Vistry |
0.67 x |
5.3 x |
10.1% |
1.89 x |
|
Bellway |
0.76 x |
5.1 x |
7.0% |
2.81 x |
|
Barratt Developments |
0.80 x |
5.4 x |
9.9% |
1.88 x |
|
Redrow |
0.86 x |
5.2 x |
7.1% |
2.70 x |
|
Taylor Wimpey |
0.86 x |
6.1 x |
10.7% |
1.55 x |
|
Berkeley Homes |
1.23 x |
9.0 x |
6.6% |
1.70 x |
|
Persimmon |
1.26 x |
6.5 x |
15.7% |
0.97 x |
|
Countryside Partnerships |
1.31 x |
7.8 x |
0.0% |
N/A |
|
AVERAGE |
0.94 x |
7.1 x |
9.1% |
1.71 x |
Source: Company accounts, Marketscreener, analysts’ consensus forecasts, Refinitiv data
“In the case of Countryside, before the bid the firm had a market capitalisation of £1.1 billion. According to its first-half accounts, the FTSE 250 firm had £1.2 billion of inventory and £0.2 billion of cash sitting on its balance sheet, the sort of asset backing which could easily attract the roving eye of a predator, be they either a trade or financial buyer.
“That again takes investors back to the multiple of book, or net asset value.
“An old rule of thumb is that builders’ shares look potentially good value when they trade at one times NAV or less, and they are expensive when they trade at two times or more.
“Countryside was trading toward the lower end of that range before Inclusive Capital and then Vistry came knocking, and several FTSE 100 and FTSE 250 builders still do.”
