Compound Income
  • Blog
  • Scores
    • Subscribers Scores Access
  • Portfolio
    • Table of Returns
  • Resources
    • Check list
  • About
  • Contact



Better Homes, Better Lives and Bellway.

26/3/2014

4 Comments

 
Picture
Continuing the recent housing and property theme that I have been exploring. Yesterday we had results from Kingfisher (KGF) - Europe's leading home improvement retail group and the third largest in the world, with 1,124 stores in nine countries in Europe and Asia. Its main retail brands are B&Q, Castorama, Brico Dépôt and Screwfix. They also operate the Koçtaş brand, a 50% joint venture in Turkey with the Koç Group. B&Q is a strong brand with the market leading position in the attractive UK home improvement market. Despite a very challenging housing and economic backdrop for the last six years, during which its market declined around 12%, Kingfisher UK & Ireland delivered broadly flat sales and achieved profit growth of 50% by exploiting the UK trade market opportunity, delivering a number of self-help initiatives whilst continuing to invest in B&Q's stores and infrastructure. 

This one therefore seemed like a good way to play the nascent housing recovery in the UK that was starting to appear, although the UK is only around 40% of turnover. France, which has seen even harder economic times, is around 40% of sales but does make margins closer to 9% versus 5% in the UK. Contributions from other overseas territories are fairly negligible except for Poland which is around 10% of turnover and makes 11% operating margins. Perhaps because all the Polish builders are over here they have to do their own DIY there?

Any way I bought it early this year as I had reduced my successful N.Brown (BWNG) holdings and wanted to diversify my retail holdings. I had Identified on the chart and valuation grounds that around 350 to 360 pence was a reasonable entry point and I targeted this since last summer. Thus when a price alert was triggered with the shares having come back from over 400 pence I was happy to put some in my trolley. 

So to the results saw turnover come in slightly ahead of forecasts at £1125 million +5.2% in total (+0.7% LFL in constant currencies) v £1107 million forecast. Earnings were slightly ahead of forecast at 23.4 pence +4.9% v 22.9 pence (F), while the dividend was slightly behind forecasts of 10.1 pence at 9.9 pence +4.7%, although they did talk about a multi-year programme of additional capital returns to shareholders, starting with around £200 million during the financial year 2014/15. They say that the timing and mechanism for this capital return will be kept under review to ensure we maximise value creation for our shareholders and that updates will be given with interim and full year results. This was probably prompted by the fact that their net cash rose to £238 million. It does however have a Pension deficit of around £100m which could be counted as debt and netted off against this cash. In addition, like most retailers, the Group's overall leverage is more significant when including capitalised lease debt that in accordance with accounting standards does not appear on the balance sheet. The ratio of the Group's lease adjusted net debt (capitalising leases at 8 times annual rent) to EBITDAR is 2.3 times as at the year end. At this level they claim the Group has financial flexibility whilst retaining an efficient cost of capital. 

I like their capital disciplines as evidenced by the proposed return of £200 million capital this year and their concept of Kingfisher Economic Profit (KEP) as a main measure of return on capital. It is used in their capital investment process, to assess performance and drive returns in strategic plans. KEP is derived from the concept of Economic Value Added representing earnings after a charge for the annual cost of capital employed in the business. Earnings are defined as adjusted post-tax profit, excluding interest, property lease costs and exceptional items. A charge is then deducted by applying the weighted average cost of capital (WACC) to capital employed. For the purposes of consistency both WACC and capital employed are lease adjusted. Leases are capitalised based on an estimate of their long-term property yields. In order to focus on controllable factors both WACC and long term property yields are based on those in place when KEP was introduced.  

Going forward, they continues to aim to move towards a medium term annual dividend cover of around 2.5 times. At this level, the Board believes the dividend will continue to be prudently covered by earnings and free cash flow and remain consistent with the capital needs of the business. So given cover is around 2.4x this year dividends should grow roughly in line with earnings from here. With double digits growth being forecast and recovering housing and construction markets I'll probably run with this one for now given a fair looking 15x PE or so and despite the relatively low prospective yield of about 2.6% after the 5%+ rise in the share price on the back of the results.

Meanwhile today to confirm the strong trend in ugly boxes - no sorry new house building from the second half of last year we have had first half results to 31st January 2014 from the national house builder Bellway (BWY). These read pretty well and demonstrate the benefits from the recovering demand for new houses. From the statement the Operational highlights were:


§ 3,245 homes sold (2013 - 2,597) - up 25.0%

§ Average selling price increased to £212,071 (2013 - £187,426) - up 13.1%

§ 2 new divisions opened with effect from 1 August 2013

§ £240 million spent on land with net investment in land holdings increasing to £1,026.8 million (31 July 2013 - £907.3 million)

§ Total owned and controlled land bank increased to 34,057 plots (31 July 2013 - 32,991 plots)

§ Low net bank debt of only £16.4 million provides Bellway with significant balance sheet capacity for further land investment

§ Forward order book at 9 March 2014 significantly ahead at £829.5 million (10 March 2013 - £507.4 million) - up 63.5%.

Commenting on the results, Chairman, John Watson, said:
"Bellway has made significant progress in the six months ended 31 January 2014, with a 74.9% rise in earnings per share to 66.3p and a 660 bps increase in return on capital employed to 17.1%.  These substantial improvements have been driven by growth in volume, average selling price and operating margin.

Strategy
"The Group's operational and balance sheet capacity for volume growth has allowed Bellway to respond positively to strong consumer demand.  The resulting growth in earnings, together with a strong focus on increasing return on capital employed, has allowed the Group to enhance the total return to shareholders through growth in the net asset value, together with the payment of a regular and progressive dividend.

Dividend
"Given the extent of earnings growth in the period, I am pleased to announce a 77.8% increase in the interim dividend to 16.0p per ordinary share (2013 - 9.0p).

"The Board expects to maintain a full year dividend cover of around 3 times, thereby ensuring a sustainable balance between further capital growth and certainty of return to shareholders.

This leaves this one on 12 month forward numbers of around 10x with a 3% yield which seems fair enough so happy to stay with this one too for now as it has improving metrics and momentum and is another one to play the government backed sub prime warp / house building boom again - so much for re-balancing the economy.


4 Comments
Rob
26/3/2014 05:36:27 am

Any thoughts on Mar City (a much smaller housebuilder ) who had results out in the last 2 days or so?
Many thanks for your informed analysis.
Rob.

Reply
jjis
26/3/2014 09:07:06 am

Hi Rob,
Mar City is not one I have looked at in any great detail. On a cursory inspection it seems the recent results were slightly light in terms of eps which came in at 6.46 pence v 7.3 pence (F). It seems quite expensive on basic P/E of 16 to 17x for next year based on current forecasts of 8.41p, and on Price to book. No dividend as yet, so not one for me but if you bought it a while back I guess you should be happy. Of course it may continue to grow well given the background and the CEO seems to have long experience and a plan.

Reply
Metier9
27/3/2014 05:29:55 am

Hey,

Ive been looking at Galliford Try lately as it keeps popping up on one of my screens. I have been if'ing and hum'ing about purchasing and wondered what your opinion was of them?

Reply
jjis
27/3/2014 06:47:51 am

Hi Metier9,
Galliford Try is one that has come up on my screens too in the past and still looks reasonable. It seems to be well managed and has recovered quite well since the downturn in 2008/9. However, I have never bought into it as a combined house builder and construction company it has looked a bit dear compared to buying pure play Companies in those sectors. But if you only have room for a limited number of holdings then its not a bad choice.

Reply



Leave a Reply.

    RSS Feed

    Archives

    May 2022
    April 2022
    March 2022
    February 2022
    January 2022
    December 2021
    November 2021
    October 2021
    September 2021
    August 2021
    July 2021
    June 2021
    May 2021
    April 2021
    March 2021
    February 2021
    January 2021
    December 2020
    November 2020
    October 2020
    August 2020
    July 2020
    June 2020
    May 2020
    April 2020
    March 2020
    February 2020
    January 2020
    December 2019
    November 2019
    October 2019
    August 2019
    June 2019
    April 2019
    March 2019
    February 2019
    January 2019
    December 2018
    November 2018
    October 2018
    September 2018
    August 2018
    July 2018
    June 2018
    May 2018
    April 2018
    March 2018
    February 2018
    January 2018
    December 2017
    November 2017
    October 2017
    September 2017
    August 2017
    July 2017
    May 2017
    April 2017
    March 2017
    February 2017
    January 2017
    December 2016
    November 2016
    October 2016
    September 2016
    August 2016
    July 2016
    June 2016
    May 2016
    April 2016
    March 2016
    February 2016
    January 2016
    December 2015
    November 2015
    October 2015
    September 2015
    August 2015
    July 2015
    June 2015
    May 2015
    April 2015
    March 2015
    February 2015
    January 2015
    December 2014
    November 2014
    October 2014
    September 2014
    August 2014
    July 2014
    June 2014
    May 2014
    April 2014
    March 2014
    February 2014
    January 2014

    Categories

    All
    32Red
    Aberdeen Am
    Admin
    A G Barr
    Airtel Africa
    Alliance Pharma
    Alternative Telecoms
    AMEC
    Amino Technologies
    Amlin
    Anglo Pacific
    Ashtead
    Asset Allocation
    Auto Trader Group
    Barclays
    BA Systems
    BATS
    Behavioural Finance
    Bellway
    Berendsen
    BHP Billiton
    Bloomsbury Publishing
    Bodycote
    Books
    Bovis Homes
    BREXIT
    Britvic
    Caledonia Mining
    Capital Ltd.
    Catlin-group
    Central Asia Metals
    Centrica
    Character Group
    Churchill China
    Cineworld
    City Of London Investment Group
    Clarkson
    CMC Markets
    Commercial Property
    Compound
    Computacenter
    Connect Group
    Croda
    Currencies
    Demographics
    Diageo
    Diploma
    Directors Dealings
    Dividends
    DotDigital
    Easyjet
    Economics
    Emerging Markets
    Emis
    Empiric Student Property
    Etfs
    Fairpoint
    Ferguson
    Ferrexpo
    Finsbury Foods
    Food Retailers
    Forterra
    Games Workshop
    Gateley
    Go Compare
    Goid
    Greene King
    GSK
    Hargreaves Services
    Hays
    Headlam
    Hedge Funds
    Hikma Pharmaceuticals
    Hill & Smith
    House Builders
    Howden
    HSBC
    IG Group
    IMI
    Imperial Tobacco
    Indivor
    Inflation
    Insurance
    Intermediate Capital
    Interserve
    Investec
    Investment Trusts
    It
    ITV
    James Halstead
    Jarvis Investment Management
    JLT
    Jupiter Fund Management
    KCOM
    Kingfisher
    Legal & General
    Lloyds Bank
    Luceco
    Macfarlane
    Maintel
    Man Group
    Market Timing Indicator
    Market Valuation
    Marston's
    Matchtec
    Media
    Merlin Entertainment
    Micro Focus
    Mining
    Mitie
    Miton Group
    Moenysupermarket
    Mondi
    Moneysupermaket.com
    Morgan Sindall
    Music
    National Grid
    N.Brown
    News
    Next
    Nichols
    Norcros
    Oil
    Page Group
    Paypoint
    Pennon
    Persimmon
    Personal Finance
    Pharmaceuticals
    Phoenix Group
    Photo Me
    Photo-Me
    Plus500
    Podcasts
    Polar Capital
    Politics
    Polymetal
    Portfolio
    Portmeirion
    Provident Financial
    PZC
    Qinetiq
    Ramsdens Holdings
    Rank Group
    Reckitt Benckiser
    Renewable Energy
    Renew Holdings
    Renishaw
    Research Papers
    Restaurant Group
    Retailers
    RIO
    RM Group
    Rolls Royce
    RPC
    RPS
    Safestore
    Sage
    Sainsburys
    Savills
    Schroders
    Scores
    SCS Group
    Sell Discipline
    Shareholder Yield
    Share Picks
    Short Interest
    Somero
    Spectris
    Sprue Aegis
    SSE
    Stock Spirits
    Strix Group
    S & U Plc
    Sureserve
    Sylvania Platinum
    TalkTalk
    Taptica
    Tax
    Technology
    Telecoms
    Tobacco
    Trading Ideas
    TSB
    TUI
    UK Market Update
    Ultra Electronics
    Unilever
    Utilitywise
    Value
    Victrex
    Vodafone
    VP.
    Water Utilities
    Watkins Jones
    WH Smiths
    William Hill
    Wynstay
    XL Media
    XP Power
    Yield
    Zytronic

    googleda4a17cac6d02bb9.html
    File Size: 0 kb
    File Type: html
    Download File

Powered by Create your own unique website with customizable templates.
  • Blog
  • Scores
    • Subscribers Scores Access
  • Portfolio
    • Table of Returns
  • Resources
    • Check list
  • About
  • Contact