12 June 2023
By Maynard Paton
I have recorded a pilot episode of The Investor’s Roundtable podcast with fellow investors and good friends Roland Head, Mark Simpson and Bruce Packard:
We talked about Roland’s investment in house builder Bellway (BWY), Mark’s investment in wiring specialist Luceco (LUCE) and Bruce’s investment in fashion retailer Superdry (SDRY). We also discussed whether investors should run concentrated or diversified portfolios:
We cover:
- Bellway (£23/£2.8b) from 03m45s:
- Roland recaps why he owns Bellway.
- Should investors buy a basket of house builders instead?
- Ensuring a margin of safety as higher interest rates impact property transactions.
- Bellway’s balance sheet, comparisons to 2008 and the outlook for the housing market.
- Luceco (126p/£203m) from 16m15s:
- Mark recaps why he owns Luceco.
- Is Luceco really a quality business?
- UK dependence, low margins and return on equity.
- Comparisons with FW Thorpe, China manufacturing and recent customer de-stocking.
- Superdry (80p/£79m) from 34m00s:
- Bruce recaps why he owns Superdry.
- Selling the Asian business for £34m, option-like equity and risk versus reward.
- Lease obligations, wholesale versus retail and the potential for a brand revival.
- Poor financial controls, founder Julian Dunkerton and a distressed valuation.
- Concentrated versus diversified portfolios from 48m30s:
- How many shares to own, overconfidence with stock-picking and other factors to consider.
- How much cash to hold, largest percentage weightings and top-slicing.
Extra links:
- Bellway website.
- Luceco website.
- Superdry website.
- Roland Head’s dividend website.
- Mark Simpson’s Small Caps Life newsletter.
- Bruce Packard’s SharePad articles.
Happy listening!
Maynard Paton
PS: The episode was recorded on 08 June 2023.
Disclosure: Maynard owns shares in FW Thorpe.
Hi Maynard
I just listened to your most recent “Round Table” podcast.
It had some great comments. And the mix worked really well.
Thank you.
Charles
Thanks Charles, glad you liked it.
Maynard
Hi Maynard,
I enjoyed the new podcast, the format is good and I really appreciate the differing views around the table. I hope there are more on the way.
Matt
Thanks Matt, glad you enjoyed it.
Maynard
Thanks for recording this all. On the housebuilders, I think balance sheet is key here and relevant to a number of the points made, for eg:
– on Bellway being a better play because came through the GFC better, that was because some of the other majors – BDEV, PSN, RDW, TW – had done big acquisitions and land bank builds and therefore were more indebted. That is not the case today.
– on volumes dropping / inventory risk: because of the debt overhang in the GFC, the builders had to generate cash pronto. Not the case today. Also there were steep rate rises leading into the early 1990s housing crash, which had nowhere near the same effect on the housebuilders as the GFC
– on the pricing of the shares. Yes the discount to book value was greater in 2008 than now but it is easy to take for granted in hindsight that all these groups survived eg TW. None of them paid meaningful dividends for years because of debt repayments and some had to raise equity. That places a huge pressure on the shares, whereas the builders balance sheets today will allow them to avoid that.
Just to put some more numbers into it, the CAGR from book value gain and dividends from 2008 to 2022 for BDEV, PSN, BWY and RDW is 7.5%, 9.4%, 10%, and 9.6%. That incorporates the big writeoffs in the GFC. For 1990-2008, the CAGRs are 11.2%, 13%, 27%, and 21% as there were no big writeoffs, albeit they were growing off a smaller base.
Then consider they all are currently trading well below their average and peak historical P/TNAV, so you have the rerating on top of those returns.
That is a very healthy expected return with very little risk of permanent loss. You may time entry better, but given there is not the same nervousness about balance sheet, I am not sure.
Apart form that the big builders are more powerful now than in the GFC as the industry has consolidated. There is also not the same political risk to the industry as there has been in the past, for eg during the 1970s. There is not much difference in the Cons/Labour policies – Starmer/Reeves talking about effecting policy through the planning system and not more draconian means.
Hi Perlican
Many thanks for the insightful comment and many apologies for my tardy response.
All very good points, on which all I would agree. BWY has the better 08/09 record, but the financial positions/management talent throughout the sector back then differ somewhat to now. Nobody really foresaw base rates being chopped to 1% during the lows of late 2008, and from what I can recall it really did feel like staring into a housing abyss (although I was biased as I was looking to buy a home at the time!). I am more bullish than bearish on builders, and for deep-value investors, the sector did look appealing back in October on a P/TNAV basis. BWY was a 10-bagger from the £4 2008 low to the pre-pandemic £40 high, not bad for a builder plus a healthy collection of dividends along the way too.
Maynard