Mccarthy & Stone Share Discussion Threads

[7kiwi] 08/9/2017 16:42

Decisive close below 160. Appears that the market not impressed with the trading statement.

I didn't like the focus on gross selling prices. It's net prices after discounts and incentives that matters.

Avoiding discussion of that makes them look evasive.

And no discussion of the Government's ground rent proposals in their formal RNS. Poor.

Next year might be stronger, but the back end loading of the sales releases and first occs, makes the year very sensitive to the weather in the winter which might impact build schedules

[speedsgh] 07/9/2017 15:00

Ground rent cut ‘means fewer flats’ -

Britain’s biggest retirement housing builder has said that any moves by the government to reduce ground rents for new-build flats to a peppercorn rate would cause the developer to build fewer homes for the elderly.

McCarthy & Stone, which controls 70 per cent of the retirement housing market, specialises in apartments and sells most of them leasehold, with the freehold sold to private companies.

The ground rent charged by the private investors starts at about £450 per year and rises in line with the retail prices index every 15 years. Last year McCarthy & Stone made 4 per cent of its revenue, about £27 million, by selling freeholds to investors.

The government has launched a consultation into whether it should ban developers from selling new-build properties leasehold, or whether the ground rent on new leases should be restricted to a nominal rent.

Clive Fenton, chief executive, said that capping ground rent at a peppercorn rate would deter investors from buying the freehold. “These are not windfall profits, these are brought into our land appraisal and impacts how much we can afford to pay for land,” he said. The warning came as the group, which suffered a 25 per cent fall in pre-tax profits in its first half, said in a trading statement that it had largely recovered after an initial slump in profits after the EU referendum last year.

[speedsgh] 07/9/2017 07:12

McCarthy & Stone is bouncing back, says Peel Hunt -

Retirement housebuilder McCarthy & Stone (MCS) has shaken off a difficult first half of the year and although conditions are still tough, Peel Hunt believes the shares are trading on too wide a discount.

Analyst Clyde Lewis retained his ‘buy’ recommendation and 220p target price on the shares, which was trading up 1.6%, or 2p, at 163p at the time of writing.

‘After a difficult first half the group has seen a decent bounce back in terms of volumes, and especially margins, in the second half,’ he said.

‘Market conditions for the group remain tougher than for other house builders due to the lack of any support from the Help to Buy scheme. While the group is sticking with its medium-term volume target of 3,000 units, it looks more likely this will be achieved in 2020 and not 2019 as we have forecast.’

This change in forecast has led Lewis to pull back top-end forecasts to ‘just below consensus numbers’ but he still feels the shares are too cheap.

‘The shares are trading on c.1.15x price/net asset value for current year 2018 versus a sector average of 1.85x, which looks too large a discount given the massive shortage in retirement housing in the UK,’ he said.

[crystball] 06/9/2017 15:59

I am quite happy with the trading update.

[mfhmfh] 06/9/2017 10:27

no negatives in today's statement

[7kiwi] 03/9/2017 15:42

Might get an end of year trading update tomorrow morning.

[bigbertie] 17/8/2017 08:38

mfhmfh - thanks, perhaps PRU will secure special deals for PRU customers on MCS properties......just wild speculation. bb

[mfhmfh] 16/8/2017 16:17

prudential group above 10%

[bigbertie] 16/8/2017 08:55

I find these notifications of holdings hard to understand - Prudential raising or reducing its holding or just reorganising it????

[bigbertie] 11/8/2017 09:21

Tempting to buy some at this price (163p) but I won't as there are a lot of possible "headwinds" or "challenges" to use the fashionable director-speak. Eg possible interest rate rises, weakness in general housing market, shortage of skilled labour, rising material costs, fall-out from ground rent issue. However there will come a time........

[fez77] 09/8/2017 21:34

Somewhat significant holding of Anchorage Capital Master Offshore Ltd just intimated today. I wonder what they are up to?

[pet lover] 04/8/2017 09:55

It's all over for the housebuildes.

Think if you looked at the housing market without knowing any history of the last 50 years.

This is what you would see today.

1/ The lowest borrowing rates for 300 years, in place for the last 7 years.

2/ Average house prices 8.2 times gross wages.

That tells you that the bubble is so large that 70% falls are on the cards over the next 20 years.

If, as I think will soon be the case, governments around the world default then your looking at 90% plus falls in asset prices.

Take a look back in history and it's plain to see, wheat, gold, land , shares they all have had extreme movements.

[7kiwi] 03/8/2017 11:32

This is a key month for MCS.

I suspect the Government announcement looking into ground rents is making it more difficult for them to close out sales at the moment.

Expect higher incentive costs - like discounting the flats by say 10 years ground rent, or similar, to get more sales over the line.

[7kiwi] 30/7/2017 13:57

Pet.

Many of those points are not unique to MCS.

The ground rent point is significant to MCS.

The borrowing rate point is irrelevant. MCS buyers don't have mortgages.

They are now selling far more off plan, cutting the sales cycle time

[pet lover] 30/7/2017 10:11

The chart in the header post says it all.

[7kiwi] 30/7/2017 09:38

The MCS ground rents start at £400-600 p.a. Not massive, but still significant.

[bigbertie] 30/7/2017 09:27

7Kiwi thanks. We did live in a block of flats for 10 years. There was a small annual payment to the freeholder which seemed very low key. But recently some builders have started using leasehold and people claim not to have understood the terms (surely their solicitors should have explained?). Good luck. BB

[7kiwi] 29/7/2017 20:30

FRI = Freehold Reversionary Interest

No, ground rents don't pay for services. The service charge pays for services, such as, in MCS's case the house manager, cleaning of common areas and maintenance etc.

Ground rents are quite literally, money for old rope.

There is perhaps a little bit of time from in house lawyers and the CFO to do the deals to sell off the FRI's, but to all intents and purposes the £27-28m is all profit.

They aren't alone in charging ground rent. The mainstream house-builders do it too, even on some houses (as distinct from flats). And I don't think MCS are the worst. The MCS ground rents are index linked and the rent rises each 15 years. Some of the worst examples include doubling the ground rent every 10 years.

However, I would hazard a guess that as a proportion of overall profit, MCS makes more than most from ground rent resales, and so is among the most exposed to a clampdown by the Government.

[bigbertie] 29/7/2017 18:33

7Kiwi, I see the problem. By the way what does FRI stand for? Also I see the revenue for FRI is reported as £28m (in 2016 results) but how much of that is profit - don't ground rents in blocks of flats usually pay for some actual services and therefore should not be treated like the ground rents appearing on houses (which I think is what Javid was aiming at?}.

In the worst case (if MCS ground rents etc are unreasonable) they should grasp the nettle and do something about it before the spotlight of public disapproval picks them out and forces their hand, IMHO. I'm holding - good luck all.

[7kiwi] 25/7/2017 10:52

I agree Bertie, simplification of the ground rent may well lead to higher sales: there is little doubt some are put off by the escalating ground rent.

But the question is will this increase in sales offset the loss of a significant portion of the £27m revenue/profit from FRI sales.

If Javid sticks to his idea of reducing ground rent to peppercorn levels, then I would suggest 90%+ of this profit will evaporate. Say down to £3m. So, £24m to find. At around £50K gross margin per unit, they would have to increase sales by around 480, or nearly 21% (compared to 2016 unit completions) to make up the shortfall (assuming no increase in admin expenses).

It seems unlikely to me that sales would rise that much, or indeed if there would be sufficient units in the workflow to support that.

[bigbertie] 25/7/2017 09:41

Any simplification as a result of this review might actually help sales. I could be in the downsizing market soon but I would avoid complications or onerous charges completely. This is an opportunity for the company to simplify its package IMHO.