Following a previous post on the volume housebuilders, I found some interesting materials by Phil Oakley (of Sharescope) that evaluates them from the perspective of an equity analyst. Amongst other things, he provides a useful primer on company analysis, balance sheets etc. He also provides a fairly up to date sector analysis of the housebuilding sector and goes on to look at a company analysis of a particular housebuilder (Taylor Wimpey). He also does a company analysis of a REIT (Mucklow). There’s a lot of interesting material in that lot.
There’s lots of differences in how he looks at the REITs and housebuilders. With the REITs, he’s interested in the discount/premium to Net Asset Value (NAV). This is a fairly standard measure of relative pricing in the REIT sector. Typically it’s measured in terms of the difference from a ratio of 1. The value of an asset holding company should be the difference between the value of the assets less debt. Often REITs appear to be worth less than their NAV. This can be because the market does not accept the asset valuations – albeit it’s been a long debated issue. Sometimes REITs trade at a premium to NAV too. However, NAV ratios for REITs seldom stray far from 0.65 to 1.2. However, for the volume housebuilders Phil Oakley reports NAV ratios ranging from 1.6 to 2.7. This could suggest that their land holdings are severely undervalued in the accounts. There may be something here. It would be interesting to know how their “strategic” land holdings were treated. More likely, it suggests that a large proportion of the companies’ values is in their housebuilding operations rather than just their land holdings. In 2015, Taylor Wimpey were making an average of £49,600 on each dwelling sold representing a profit of 23.6% on average sale price.