Per Barratt's 2007 interims:
Net debt = £1,738.5 million
Number of building plots = 113,500
Add on market capitalisation of £232.3 million (based on share price as at this morning of 67p), total enterprise value = £1,970.8 million
£1,970.8 million ÷ 113,500 = £17,364.
I had calculated that a typical plot was 'worth' about £100,000* at the end of 2007.
£17,364 is less than one-fifth of the value of six months ago! It's a multiple of less than one-times-average-earnings, so, on the basis that a house is worth bricks'n'mortar plus land, this means the stock market is pricing in a house-price-crash down to mid-1990s price levels (adjusted for earnings).
I think I'll give it a couple of years before I buy again!
* i.e. mid-figure from the graph 4.5 x £457 per week x 52 = £106,938. Or £2,910,000/hectare ÷ 2.47 acres/hectare ÷ 12 homes/acre = £98,178. Or use the rough and ready approach, i.e. average house price £180,000 minus typical rebuild costs £80,000.
Thursday, 12 June 2008
Barratt's land bank valued at £17,364 per plot
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10 comments:
Taking your arithmetic at face value, does this imply that Barratt's is a "buy" to be followed by a swift company liquidation? After all, it's not entirely unknown for the break-up value of a company to be far in excess of its "going concern" market valuation (cf all those investment trusts I remember from the 70s and 80s). Also, as I recall, buying asset-rich companies with low market capitalisations was one of the bases of Charlie Clore's fortune.
I agree... I calculated yesterday that the land value per plot was implied with a ceiling of ~£18K - assuming Barratt had no other assets.
I think we need to be careful about extrapolating from this to the value of houses... however. The cost of houses needs to concern itself with the finance of the building program as well as the cost of materials and future profits for a more successful builder than Barratt.
It does prove, however, that supposed land values today are greatly skewed by builders having hoarded land-banks that they can't afford to maintain... and that this has artificially constrained supply.
U, exactly!
I could (at a push) scrape together about one-quarter-of-one-thousandth of B's enterprise value. If you can find 3,998 others we'll go for it! We'll give ourselves 28 plots each and go our separate ways.
asteve, I'm working from a) actual selling prices of land per VoA and b) ABI's build costs, which of necessity include builder's interest costs and profit margin.
Not sure if 113,500 plots (most without final planning) counts as 'hoarding'. If local councils had any guts they could easily swamp the market by being more generous with planning, on a use-it-or-lose-it basis (to avoid oversupply).
In case you think I'm being flippant, a slightly more sophisticated look at break up values comes to much the same value:
If you look at the interim consolidated balance sheet, out of £6,343 m total assets, £923 m is intangibles and goodwill (worthless), £5,171 m is stocks, then there's £248 m other bits and pieces (trade receivables, plant and machinery).
Let's assume that total liabilities £3,435 m is 'about right'.
OK. Breakup value must, broadly speaking = liabilities plus market cap = net asset value.
£3,435 m + £220 m = £3,655 m
Let's assume that 'construction work in progress' is worth 85% of book value for a quick sale = £1,447 m (from note 11)
Let's also assume other bits and pieces are indeed worth £249 m (collect debts, flog off plant and machinery).
By subtraction, £3,655 m minus £1,447 m minus £249 m = £1,959 m
The only other asset left (intangibles and goodwill being worthless, obviously) = land bank
Ergo, landbank is worth £1,959 m
£1,959 m ÷ 113,500 = £17,260 per plot.
Caveat - yes there are huge margins of error in all this.
MW
"If you can find 3,998 others we'll go for it!"
Good idea - unfortunately, I'm sure it's occurred to someone with more money than you and me . . . and who doesn't need to rustle up another 3,998 investors.
Going back to the 70s, I remember one of the senior directors at the bank I then worked for saying that there's no genius in making money from property (or shipping) in bad times - just survive, the market will always come back. "My" bank made a fortune in real estate and shipping by pulling the plug on those clients whose cashflow to support their debt was non-existent. The bank held on to the assets and sold them subsequently into a rising (or risen) market.
Of course, there was a fair number of dildoid banks (I do not exclude many of our bigger banking institutions from this description) which "foreclosed and disposed" or forced their customers to dump their assets into a falling market thereby exacerbating the problem. Those in property and shipping who were lucky enough to retain the support of their banks made their fortunes back - and a bit more besides.
We'll see the same thing this time round.
I'm on, Mark; 3997 to go.
(As long as I get the plots behind our garden hedge.)
Mark, I don't think you're being flippant - though I think it interesting that I arrived at a similar figure with a far more straightforward calculation.
If we combine the knowledge that a median house costs under £80K to build, say (including a margin for the builder's profit) then new-build houses costing over £100K are definitely over-priced.
A couple of years ago I priced building my dream home... No expense spared... though within the constraint of good taste. Excluding land, it came in at £90K. I was horrified... especially as I knew that such a house would sell at over half a million, and that the land (without planning permission) could be bought for, about £20K.
Unfortunately, the only reasonable way to acquire land would be to buy land with a building on it (for half a million) then demolish and re-build... which rather undermines the cost saving angle.
I`m a land owner in the east midlands not exactly kensington but as of sept 2008 land here is going for around 750 to 850 k an acre .
That sounds very high. Is that land more Nottingham or Mansfield?
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