Wednesday, January 19, 2011

BWY.L - a weak sell

I decided to sell my BWY shares today on the back of an RNS statement. Although BWY looks cheap on a PTB basis, two directors sold some shares. The shares, totalling 33.4k, were options granted under the employee share option scheme. They passed to the directors, who immediately sold them at 679.5p. That amounts to about £227k. I figure that if the shares were truly undervalued, the directors would have kept them. Two other factors influenced my decision. None of my respected fund managers hold shares in housebuilders, and I'm rather worried about the economy and what could happen to share prices.

I say it is a weak sell because PBV is on the historic low side, and housebuilders have had some encouraging results lately. On the theory that things seems to be picking up, shares should be a hold. Profit forecasts are also positive, so it doesn't look a terrible share.

However, I still sold due to my nervousness about economic outlook (which is admittedly rather fanciful), and the directors selling. Maybe the directors felt that they had enough shares in the company, but like I say, how comes we aren't seeing holdings by fund managers, and how comes the directors aren't holding onto their shares if the theory that we could see further significant pickup in housing?

I'm adopting a more cautious strategy now. I've chosen so many rubbish shares in the past, that I need to focus more on downside risk.

Here's my dealing history with BWY:

Om 18-Jun-2010, I bought shares at 628p. The footsie was at 5253. I sold them today at 663p, when the Footsie was at 6030. That gives me a gain on BWY of 5.6%, versus a return by the Footsie of 14.8%. Dealing costs are included in my buy and sell prices, but not dividends - which would have been quite small.

Update: according to this graph,  the first time average house price to earnings ratio is about 4.5, compared to the long-term average of 3.5. First-timers therefore find houses very expensive. It is interesting that BWY recently said that it was building more expensive houses, where, IIRC, they were more affordable. This is interesting, because it appears that a two-tier system is developing. OTOH, according to another graph, average house prices adjusted for inflation appear to be below trend, indicating that houses are relatively cheap (actually about in line). This is counter-intuitive when you consider that interest rates are low. Maybe it is the lack of lending that is the real problem, rather interest rates per se. However, if rates are low, then affordability should also be good for first-timers. So there's a piece of the puzzle that I'm not understanding.

Update 03-Feb-2011: BWY is currently trading at 603p, so it looks like I was right to sell.

1 comment:

John Kingham said...

Hi Mark

Bellway comes up at number 33 on my screen, which is good enough that if I held it I'd keep holding, but probably wouldn't buy as that's too far down the list. Barratt on the other hand is 12, so a stronger hold and perhaps even a buy If I didn't own it already.

As for where the house market is headed, I try not to think about it, but I would say that they're still way over valued. Just because they are below trend in the 'house price crash' graph doesn't mean anything. The trend is massively skewed to the upside by the extreme over-valuation in 2007/8. Look at the previous bears, especially in the 90's, where prices went WAY below the trend. I expect we'll get something similar eventually.