Watkin Jones Share Discussion Threads

[riverman77] 07/10/2022 11:19

Yes just my opinion, but I think better value elsewhere in the current market. WJG is still on a substantial premium to book value, unlike nearly all other housebuilders - doesn't require a detailed financial breakdown to prove that.

[red ninja] 07/10/2022 11:06

Riverman77

Mmm in your opinion and you're hardly giving us an accountants breakdown to justify that opinion.

[riverman77] 07/10/2022 10:21

Institutional investors will want a much higher yield and will also be unwilling to cover all of the higher building costs - this will translate to a big fall in forward funded property values, so agree this could be weak for a while. Worth noting that VTY (who also do at lot of partnership deals with institutions} is on a much lower PE and discount to book value, so not sure why I'd consider WJG until it's fallen closer to book value. If you're talking more pure play construction names then MGNS looks better value than this.

[hybrasil] 07/10/2022 09:59

I agree quepassa.

As to comparisons I admit I am comparing it with property companies generally.

Higher interest rates will mean institutional money will have no interest in student housing.

The share price here has to represent a substantial discount to NAV and at .93p it is still a short for me

[amaretto1] 06/10/2022 17:39

Welsh companies should always be valued less :-))

[quepassa] 06/10/2022 17:19

Both NED's are already down 10% in a week.

That's not clever.


I think this share has further to drop.

ALL IMO. DYOR.
QP

[bend1pa] 06/10/2022 15:37

'Seen many examples where management buy in but the company continues to disappoint...'

The classic example of that which springs to mind is Saga. All the directors who participated in that have lost virtually all their money and some 6 figure sums individually in 1 or 2 cases. But Saga have made some terrible mistakes since they went public, as well as having bad luck. They have managed to turn what was a well run private insurance company, catering for people over 50 years of age, into a total debt-ridden basket case in just a few short years.

However WJG, when it last reported had net cash of £26.8m, so AFAICS, no immediate liquidity issues. I don't have a problem investing a small amount at this level as long as their business and margins don't decline at too fast a rate. Margins seem to be the main consideration spooking the market.

[riverman77] 06/10/2022 12:43

Seen many examples where management buy in but the company continues to disappoint, so wouldn't necessarily read too much into that. That said, I think this is a decent business and would expect them to recover pretty well on a 2-3 year view.

[red ninja] 05/10/2022 20:21

Well the management have invested £104K on 4th October.
They could have not bothered and invested in other companies.
Thus, that suggests they think they see value here.

[riverman77] 05/10/2022 16:48

I don't think anyone is saying it's a basket case, just perhaps not that cheap versus other builders and property companies (even after latest fall).

[bend1pa] 05/10/2022 16:20

Some notable directors buying yesterday, although it could just be a 'steady ship' exercise. But then why waste your money like that if the company is a potential basket case as a few here are inferring?
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www.sharecast.com/uk_shares/director_dealings

[red ninja] 05/10/2022 13:21

FranesBarnes,

Good point.

However, I was pointing out that his buying maybe an indication of a reasonable entry point, not making a moral judgement.

[74tom] 05/10/2022 13:15

"if it was to trade like its peers in the sector that would infer a share price of 40p."

Which peers are you referring to?

[farnesbarnes] 05/10/2022 12:26

Red Ninja,

Simpson should be a good builder not a good trader. That will enhance shareholder value.

Companies should be run for the benefit of shareholders, not directors or employees.

[red ninja] 05/10/2022 10:44

Mmm you want to compare WJG with companies with a different business model.

[hybrasil] 05/10/2022 10:40

It brings to mind the adage "one mans meat is another mans poison".

One of of us and obviously I hope its me will be right!

[red ninja] 05/10/2022 10:33

Snippet from Investor's Champion tipsheet. They seem to think there is value here :-

"The balance sheet remains in great shape with gross and net cash at 30 September 2022 of approximately £105m and £75m respectively.

In terms of outlook Watkin Jones has good revenue visibility coming into the next financial year with c. £270m of revenue secured and expects demand from institutions for residential for rent assets to remain robust. However, they also believe it is prudent to assume that margin pressure because of purchasers' elevated borrowing costs will continue into FY-2023.

In response, one analyst has cut forecast adjusted pre-tax profit goes from £55m to £49m for FY22E and, adopting a prudent stance, from £75m to £50m for FY23E. Earnings per share are reduced to 15.5p (-11%) and 15.8p (-30%) respectively. The forecast dividend remains at 8.7p for FY22 and 7.9p for FY23.

The shares fell 34% on the day of the news and have now fallen c64% from January highs of 282p to only 100p. This results in a current year earnings multiple of only 6.3x and dividend yield touching 8%.

Watkin Jones is not structured like a traditional house builder, forward selling its Build to Rent developments and holding limited land-bank inventory. Return on equity is therefore more than double that of traditional house builders.

The shares have now fallen back to the March 2016 IPO price of 100p which looks overly harsh, with revenues, profits and cash flow having risen substantially since then. Its capex light operating model has seen free cash flow over the 5 years to Sept 2021 average £39m per annum, equivalent to a free cash flow yield of 15% at the current valuation, although free cash flow is forecast to be a negative £23m in the current financial year."

[hybrasil] 05/10/2022 10:24

Yesterday I said NAV was about 60 p
Ive been thinking about it and if it was to trade like its peers in the sector that would infer a share price of 40p.

Having said yesterday I was not short I am now going to go short

[red ninja] 05/10/2022 10:23

amaretto1

My impression is that Richard Simpson has been selling over £2 and buying at around £1.

Is that not good trading ?

Red

[zangdook] 04/10/2022 21:55

Simpson's average is 102.2p, not 102.25p. A minor but careless and lazy error. At a time like this you don't want to look careless and lazy.

[horndean eagle] 04/10/2022 19:41

Falling nav applies as they have assets which will need to be written down to reflect lower pricing. They may have land options as well (not sure) which may suddenly become a liability.

[amaretto1] 04/10/2022 19:35

Director dealings in the past ... are let's say ... disastrous

[paleje] 04/10/2022 19:14

ST aired his opinion this evening:-

... and build-to-rent (BTR) housing, lost a third of their value after the group missed 2022 operating profit estimates by 10 per cent and warned of both softness in margins as well as pricing pressure as purchasers face higher funding costs.

Two forward sales that were planned to close in September have been pushed back to the new financial year due to the spike in market volatility. So, although the trading performance in the second half was materially better than the first half, analysts at Progressive Equity Research have downgraded their pre-tax profit estimates by 10 per cent to £49mn on revenue of £421mn (down from £561mn previously forecast) for the 12 months to 30 September 2022.

They have also slashed their forecasts for the 2022/23 financial year, cutting their revenue estimates by £114mn to £545mn, trimming BTR profit margins from 17 to 13 per cent, and increasing administration costs by £2.6mn, the overall effect of which is a 33 per cent downgrade in group pre-tax profit estimates to £50mn. On this basis, expect flat earnings per share of 15.8p and a dividend of 7.9p a share (down from 8.7p forecast in 2022) implying the shares are rated on a forward price/earnings (PE) ratio of 6.3 and offer an 8 per cent prospective dividend yield. Closing net cash of £75mn (30p a share) now accounts for 30 per cent of the group’s market capitalisation.

There is no glossing over the scale of the profit downgrade, and understandably investors are taking a cautious stance, selling the shares down to their 100p IPO price. But equally the long-term fundamentals support both asset classes, driven by rising tenant demand and attractive income characteristics for institutional investors. Also, forward sales still account for half of revised 2023 revenue estimates, offering a degree of visibility even though earnings risk is now greater in a more challenging trading environment. Hold.

[quepassa] 04/10/2022 16:55

Don't think that today's modest Director Buying will help.

Buying into a profits warning is a crazy strategy.

all imo. dyor.
qp