Good business shares: built on solid foundations
The main reason my annual discounted equity portfolios have worked so well over the years is that I have targeted small and micro cap companies where I can use my stock picking skills. and analysis to gain the advantage. This is because there is a lack of institutional research and media coverage in this space, thus creating opportunities for poor market valuation and valuation anomalies to be exploited.
I also use seasonal investment strategies to increase returns. This is relevant right now, as the trend for the UK listed homebuilding sector to pick up in the first quarter is one of my permanent flat trades of the year. I first discovered this phenomenon while doing quantitative research almost two decades ago (“It’s time to take stock”, November 14, 2003). The trading strategy has stood the test of time: since 1980, the sector has recovered 85% of the time in the first quarter to post an average net gain of 11%. The losses during the slack years were manageable.
A recovering UK economy, tight labor and housing markets, low mortgage rates and generous government programs for homebuyers indicate a continuation of this trend. This is good news for two of my small cap sector picks.
Springfield’s profit growth underestimated
- Accretive Acquisition of Profits from Highland Developer, Tulloch Homes
- Â£ 22million 140p per share placement funds half of initial cash consideration
- Earnings per share (EPS) improvements of 7%, 12% and 9.9% for 2022-2024
- Dividend per share forecast increased by 8%, 11% and 7% for 2022-2024
Springfield Properties (SPR: 147p), a home builder focused on developing a mix of private and affordable housing in Scotland, looks set to benefit from a strong national housing backdrop, a recent increase in profits and a improved investor sentiment.
Last month the group acquired Tulloch Homes, a profitable, cash-generating and well-managed home builder with significant land ownership in the Scottish Highlands around Inverness. Strategically, the acquisition strengthens the group’s presence in a high demand area in Scotland where Springfield has built a presence organically; strengthens the group’s private land bank and creates an affordable housing opportunity; and adds supply chain capabilities such as access to labor and subcontractors.
The deal also improves profits. In the fiscal year ended June 30, 2021, Tulloch sold 219 homes, generated revenue of Â£ 46.4million and operating profit of Â£ 6.3million. This means that the initial net cash consideration of Â£ 43.4million (funded from a placement of Â£ 22million and Â£ 21.4million of bank loans) and a cash consideration Â£ 13million deferral (half payable in December 2022 and August 2023) is equivalent to nine times the historic operating profit.
In addition, Tulloch’s pro forma net asset value (NAV) of Â£ 74.6 million includes a land reserve of 1,791 plots, of which 87 percent have a building permit and 91 percent are held in full property, with a Gross Development Value (VGD) of Â£ 375million, or seven years of development at the current pace of business. Springfield now controls 17,072 plots with a GDV of Â£ 3.5 billion, the equivalent of 14 years of production.
Taking Tulloch’s contribution into account, analysts at Progressive Equity Research now expect the group’s EPS to rise 11% to 15.9p in the 12 months leading up to May 2022, rising to 19.2p (2023 ) and 20.6p (2024). Additionally, with estimated closing net debt of Â£ 49.7million, equivalent to just one-third of NAV as of May 2022, and operating cash flow expected to more than double to Â£ 19million as of During fiscal years 2023 and 2024, analysts increased their dividend per share. estimates strongly at 6.5p, 7.5p and 8p for the forecast period 2022-2024. On this basis,
The forward price-to-earnings (PE) ratio of 9 drops to 7.5 in two years and the potential dividend yield of 4.4% climbs to 5.4%. The estimated net asset value per share of 121.6p (May 2022) is expected to reach 150p by May 2024 after taking into account retained earnings after dividend payment.
The farm has generated a total return (TR) of 9 percent since I included the stocks, at 135.6 pence, in my Equity portfolio at a good price 2021, although this is lower than the portfolio’s RT of 24 percent. However, as more investors take note of Springfield’s strong futures order book, earnings growth profile and the potential to unlock the hidden value of the balance sheet of land holdings, a sharp revaluation of the price of the action could and should materialize. To buy.
|Performance of the bargain equity portfolio in 2021|
|Company Name||ITLOS||Marlet||Opening offer price 05.02.21||Offer price 05.01.22||Dividends||Percent change (%)|
|Vietnam Holding (see note 1)||VNH||Main||201.4p||356p||0.0p||89.1%|
|San Leon Energy||ELS||Goal||27.5p||40.75p||0.0p||48.2%|
|Canadian General Investments||CGI||Main||3,611c||4,405c||88c||24.4%|
|Micro-Cap Strategic Downing||DSM||Main||69p||72p||0.8p||5.5%|
|Total return on FTSE shares||7 135||8,499||19.1%|
|Total return on shares of FTSE AIM||1,384||1,405||1.5%|
Note 1: Simon recommended to deposit 30% of the stakes in Vietnam Holdings at 4.4528 USD (322.3p. To buy back the shares tendered at the lower market price (offer price of 284p on September 13-14, 2021) when the cash distribution was made during the week of September 13, 2021. The total return reflects those trades which reduced the entry point to 188.3pa share.
Source: London Stock Exchange
Inland Homes ready for reassessment
- Debt reduction following the sale of the final phase of the development of Carters Quay in Poole
- Facilities refinanced at Cheshunt Lakeside on significantly better terms
- In negotiation with a large Build to Rent fund for the development of phase 1b of Cheshunt Lakeside
Houses inland (INL: 56p), a south-east England-focused homebuilder and brownfield developer, is expected to release a solid set of full-year results later this month and has made further progress in deleveraging its balance sheet since the pre-closing update (‘Bargains: On the property beat ‘, November 1, 2021). It is certainly not valued as the shares are valued at an unjustified discount of 43% compared to the historic net asset value of the European Public Real Estate Association (EPRA) of 97.66p and on a modest PE ratio. term of 8 for the 2021/22 financial year.
Additionally, following the Fall Business Update, Inland sold the final phase of its Carters Quay development to Poole in Bournemouth, Christchurch and Poole Council, after acquiring brownfield sites, formerly Pilkington Tile Factory, and worked with the local council to reclaim unused industrial site land to create new housing and commercial spaces.
The final phase of the program will provide 161 new homes and 8,000 square feet of commercial space with construction starting in April. The contract is for total consideration of Â£ 43.5million over the next 36 months, with monthly installment payments being made to Inland Homes as the project progresses. Inland received a deposit, along with a down payment of Â£ 8.25million, which reduced proforma net debt to Â£ 110million, or around 50 percent of EPRA NAV.
The group also refinanced facilities in Cheshunt Lakeside where building permits were obtained in 2019 for 1,725 ââhomes. A Â£ 14.25million mezzanine loan facility with Homes England has been arranged on considerably better terms than the previous facility, along with an infrastructure facility of Â£ 7.4million and an additional facility from cumulative interest and charges of Â£ 2.85 million. In addition, Inland is in advanced negotiations with a large Build to Rent fund for the development of Phase 1b of the program, which will result in the construction of 205 new homes, creating additional shareholder value.
|Performance of Simon Thompson’s Windfall Equity Portfolios (2016-2021)|
|Wallet||Total portfolio return to date||Total FTSE All-Share Return to Date||Total return of the FTSE Aim All-Share to date|
Source: London Stock Exchange, FTSE International, Bargain Shares Portfolio, total return calculated on the basis of the offer to offer with uninvested dividends. Last prices on January 5, 2022.
Inland’s share price is slightly below the entry point of 57.75 pence in my 2019 bargain equity portfolio, although the price peaked at 94p in early 2020 ahead of that year’s Covid-19 pandemic stock market crash. The disconnect between Inland’s growth expectations – analyst Adrian Kearsey of real estate broker Panmure Gordon expects pre-tax profit to rise nearly 50% to Â£ 19.9million over the course of the 2021/22 fiscal year to deliver EPS of 6.9p – and the current rating is operator. To buy.
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