P/E

lse:inl

#1

The P/E of 5.9 is incredibly low. Have a look at the other quoted builders.


#2

wineberry:“The P/E of 5.9 is incredibly low”

It is, but it is partially an accounting anomally - but only partially. However you work it, it is still well under 10 as far as I can see. I look on INL as a late bloomer in the sector, although those who bought at @20p in 2011 may well think it is I who am the late bloomer.

The point is, INL, compared to the rest of the sector, took off a lot later than most of the rest of the sector, and has had long sideways moves in-line with the sector too. In percentage terms, I think INL has much more potential growth than the likes of Eg. BDEV, which I was buying for @69p in 2011 and in which we have seen a >900% rise. Even those lucky enough to buy INL @20p have not seen that kind of return. Yet.

Also, the P/Es of other builders, which in the past would have been sky high in the middle of such a bull run, are actually clustered around the FTSE average. BKG is 11.9, BDEV 13.8, PSN is about the highest at 16.6. I think the FTSE 100 long term average is about 15.
.
In other words, if you expect them to keep up similar performances, then their P/Es in the out years, Ie, the years ahead, are unbelievably small for companies that can justifiably expect some reasonable growth, if not great growth, for at least another 3 years. Certainly they are all are expecting to increase sales and profits next year.

Normally markets would price that growth in and the share price would reflect their assignation of a much higher multiple, as indeed BDEV was for a while, well into the 20s.

But earnings have caught up without very much sp growth which now means these companies like BDEV, BKG etc, with yields of over 5% even at current prices, are fantastic investments with no high risk of the market bombing the share price over-night in the event of the odd interest rate rise etc.

Compare this to ARM holdings, with a P/E of 48, for example, which gave a return of about 6% on its stock price over 2015 and has a yield of 0.82%. ARM is a company that has to constantly keep ahead of the competition to make its sales, and has a great track record of doing so.

However, there is absolutely no guarantee that it will still be ahead in 2 or 3 years, whereas housebuilders look very well set for at least the greater part of the term of the current UK government.

Probably the worst that could happen with INL in the short term, is they get a take over offer the board can’t refuse and we all get paid a large premium for our shares - but not anything like as large than if we’d been able to hold onto the shares for another 2 or 3 years.

Today’s share price is @86.5. I would not be at all surprised to see that @150p-170p this time next year with just as good a growth forecast for company operating results by management for 2017 as they have given for 2016.

I’m half expecting an across-the-board correction on the markets in January, or certainly sooner rather than later in 2016. INL is very much toward the top end of my shopping list, even if it would mean averaging UP yet again.


#3

Eadwig 3rd Jan 2016:“I’m half expecting an across-the-board correction on the markets in January, or certainly sooner rather than later in 2016. INL is very much toward the top end of my shopping list, even if it would mean averaging UP yet again.”

Well, we’ve had a horrible opening week, and that correction has happened, but the INL price has stood up amazingly well, as have a lot of the smaller construction companies.

The larger ones have been pulled down, but probably due to funds selling the whole of the FTSE 100 or 250. PSN reported decent results in the middle of last week, although not quite as stellar as the previous few years, I thought.

I think the markets will drop further yet, but I’m not sure I am going to get a chance to pick up INL shares on the cheap after all. Same with ESP, who are alongside INL at the top of my shopping list.

Possibly, the correction has actually held the sp down. Possibly it has been supported by money taken from other sectors, maybe Cameron’s new year speech making housing a priority and appearing to suggest measures for an extra 13,000 homes spread around the smaller builders has had an impact. Very difficult to say. I’m not going to buy at this price (@88.12p), but I might just end up regretting that decision.