The Lemon Fool

Having seen the "A-Level fiasco" consistently in the news ever since results day last Thursday I have been having a "macro" think about what this might mean. Now that the Dept. of Education has decided it makes political sense to cave in to the pressure to U-turn we now have the situation of many more students achieving better results than in previous years.

Without the political angle, which here really isn't the right place to discuss, the original results were marginally higher than 2019, with A and A* at the highest level for 13 years. Concurrent with the original release was the news that the proposed grades were adjusted down to these levels, with around 40% of grades affected. Now, the original results were deemed "unfair". The algorithm, whilst probably correct at the macro level, wasn't reflective enough of micro issues (funny how the "winners" are rarely vocal!).

As a result we now have the "teacher predicted" grades being used, not the post-algorithm set. Again this is factual, not political. So, what does this imply? It is noticeable now how the "news" is now much less focussed on the "poor students" that missed out on University places, to the poor Universities that now need to find places for the much larger cohort of students wanting, and having the grades, to go to University.

With job opportunities reduced, and the attraction of "gap year travel" diminished also, I can't see how there won't be an increase in University numbers next year. So who benefits from that? The simple thought is that these students all need housing somewhere. That's where Watkin Jones Group comes in. They are a UK construction and Property management group, with a specialism in the niche of Student accommodation.

Pre-Covid these were trading at highs around 280p, and like many property companies fell sharply, as low as 130p. Their recovery has been somewhat anaemic, still trading below 150p. What I find attractive, other than the entry price, is the ongoing service contracts they have over managed student accommodation. It isn't just the "Identify, build, sell, move on" model of property development. In addition most projects are "pre-sold" to institutions so the risk exposure is lower than speculative developers are exposed to.

One for further investigation, and I welcome any comments.

(For good orders sake I already have a long position in the this share).

dealtn wrote:With job opportunities reduced, and the attraction of "gap year travel" diminished also, I can't see how there won't be an increase in University numbers next year. So who benefits from that? The simple thought is that these students all need housing somewhere. That's where Watkin Jones Group comes in. They are a UK construction and Property management group, with a specialism in the niche of Student accommodation.

Pre-Covid these were trading at highs around 280p, and like many property companies fell sharply, as low as 130p. Their recovery has been somewhat anaemic, still trading below 150p. What I find attractive, other than the entry price, is the ongoing service contracts they have over managed student accommodation. It isn't just the "Identify, build, sell, move on" model of property development. In addition most projects are "pre-sold" to institutions so the risk exposure is lower than speculative developers are exposed to.

One for further investigation, and I welcome any comments.

(For good orders sake I already have a long position in the this share).

Funny you should mention this one as it came up on a screen I ran a few weeks ago looking for quality companies that had not bounced back with the rest of the market (negative 6 month RS is 37% ish). I also have a small clump of these in my SIPP which is underwater but which I'm happy to continue holding as I like the business. The main reason I haven't topped up is because of the forward looking comments in the HY results back in May. In particular, the following comments:

The outturn for FY 2020 will be largely dependent on the completion of the seven student accommodation developments due this year, the level of progress made with the construction of the forward sold FY 2021 pipeline and whether the Group decides to forward sell any of its development sites in the second half given the uncertain investment environment

Activity in the institutional forward sale and land purchase markets has been subdued since the period end. Whilst we anticipate that activity in these markets will increase through the second half, the Group will use its strong financial position to progress forward sales and site acquisitions in the short term only if negotiated terms prove satisfactory

Of course, it's not just about the student accommodation these days and the growing Build-to-Rent business should also do well since the rental market is very active (see recent updates from another of my holdings, Belvoir) as people look to move out of shared accommodation into places of their own. It's a long way from the usual trading update in November and transaction updates have been noticeable by their absence, so maybe institutions are still not active in the market. It's tempting to average down but I'm not convinced yet...

All the best, Si

simoan wrote: The main reason I haven't topped up is because of the forward looking comments in the HY results back in May. In particular, the following comments:

[i]The outturn for FY 2020 will be largely dependent on the completion of the seven student accommodation developments due this year, the level of progress made with the construction of the forward sold FY 2021 pipeline and whether the Group decides to forward sell any of its development sites in the second half given the uncertain investment environment

I took this to mean uncertainty since construction sites were (then) closed down, but have now re-opened. So whilst we await the news on how this is going, presumably the uncertainty has at least cleared.

dealtn wrote:

simoan wrote: The main reason I haven't topped up is because of the forward looking comments in the HY results back in May. In particular, the following comments:

[i]The outturn for FY 2020 will be largely dependent on the completion of the seven student accommodation developments due this year, the level of progress made with the construction of the forward sold FY 2021 pipeline and whether the Group decides to forward sell any of its development sites in the second half given the uncertain investment environment

I took this to mean uncertainty since construction sites were (then) closed down, but have now re-opened. So whilst we await the news on how this is going, presumably the uncertainty has at least cleared.

Yes, agreed. The uncertainty now is how the forward sales are going. They normally RNS them and there have been no announcements since the results in May. Make of that what you will but all we know at the moment is that the share price is lower than it was after the HY results. There's not much else to go on so I'm very much in "buy the news" mode with regard to WJG currently.

All the best, Si

One for further investigation, and I welcome any comments.

I think you may be on to something here. I just took a quick look at them and the balance sheet and profitability are good and cashflow over the last couple of years looks quite sufficient to support quite an attractive yield which has been growing. I'm going to add them to my watchlist and wait for further news.

Thanks

i held these in the past , and recently bought back in at 135p.

many good features.

FWIW below is the output of the screen I mentioned. This is looking for companies with Market Cap > £100m, 6 month RS < -10%, 5 year average ROCE > 10% and margins > 5%, with net debt < 2x EBITDA. Given that I hold 7 of these companies I'm somewhat surprised to be only 3.7% down YTD!

simoan wrote:FWIW below is the output of the screen I mentioned. This is looking for companies with Market Cap > £100m, 6 month RS < -10%, 5 year average ROCE > 10% and margins > 5%, with net debt < 2x EBITDA. Given that I hold 7 of these companies I'm somewhat surprised to be only 3.7% down YTD!

I own 3 (and nearly a 4th, long and irrelevant story)

simoan wrote:FWIW below is the output of the screen I mentioned. This is looking for companies with Market Cap > £100m, 6 month RS < -10%, 5 year average ROCE > 10% and margins > 5%, with net debt < 2x EBITDA. Given that I hold 7 of these companies I'm somewhat surprised to be only 3.7% down YTD!

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which seven please ?

jackdaww wrote:

simoan wrote:FWIW below is the output of the screen I mentioned. This is looking for companies with Market Cap > £100m, 6 month RS < -10%, 5 year average ROCE > 10% and margins > 5%, with net debt < 2x EBITDA. Given that I hold 7 of these companies I'm somewhat surprised to be only 3.7% down YTD!

==============================

which seven please ?

Oh. I guess I was asking for this! I don't generally like just listing stuff without explaining why I hold it, or when I bought it etc. And I have no interest in doing public portfolio reviews etc. Some people feel it's useful to do that but I don't because it reinforces potentially bad influences on my future behaviour. Besides, I always assumed no-one would care! The 7 shares do not really give you a feel for my overall portfolio either and jointly are a rather small percentage of it - I'm currently 15% Fundsmith Equity.

Anyway, FWLIW, apart from WJG, on another thread I've discussed HEAD and SFR. I also hold BAG and OMG in my SIPP, and recently bought into TW. at a significant discount to the 145p placing price. For my sins I also hold ITV but the less said about that the better...

All the best, Si

simoan wrote:

dealtn wrote:I took this to mean uncertainty since construction sites were (then) closed down, but have now re-opened. So whilst we await the news on how this is going, presumably the uncertainty has at least cleared.

Yes, agreed. The uncertainty now is how the forward sales are going. They normally RNS them and there have been no announcements since the results in May. Make of that what you will but all we know at the moment is that the share price is lower than it was after the HY results. There's not much else to go on so I'm very much in "buy the news" mode with regard to WJG currently.

All the best, Si

I was reasonably happy with the trading update this morning: https://www.investegate.co.uk/watkin-jo ... 00024426E/ and so have just bought a few more as things look pretty solid overall. Main highlights from the RNS for me:

· Strong second half recovery with adjusted operating profit for 2020 expected to be in the range £48.0 million to £50.0 million, with revenues of circa £350.0 million

· Repayment of all COVID-19 financial assistance received from the government this year, totalling £0.8 million, in view of the recovery in performance

· Intention to pay a full year dividend for 2020 in line with our policy of 2.0x cover, reflecting our strong cash position, subject to there being no material deterioration in market conditions

So net cash of £90 million, a FY dividend promised and maintained adjusted operating margins of 13.7-14.2%. I can think of a lot worse places to have some money invested.

All the best, Si

Latest full year results are out and encouraging.

https://www.investegate.co.uk/watkin-jo ... 00050970M/

The forward looking stuff appears to be good, and the student accommodation story looks strong.

Share price up around 10% today.

dealtn wrote:Latest full year results are out and encouraging.

https://www.investegate.co.uk/watkin-jo ... 00050970M/

The forward looking stuff appears to be good, and the student accommodation story looks strong.

Share price up around 10% today.

Yes. All looks good with underlying operating profit above the £48-50m range indicated in the year end trading update in November and a fully restored FY dividend of 7.35p that makes up for the interim dividend skipped last year. Also twice covered by earnings. Nice

All the best, Si

H1 2021 Trading Update

https://www.investegate.co.uk/watkin-jo ... 00083676V/

In line with expectations, but encouragingly more news on the growing pipeline.

Shares at 1 year high, but below pre-Covid (spike) peak.

FY 2021 Trading Update

https://www.investegate.co.uk/watkin-jo ... 00039918Q/

A bit of a mixed bag, but cautiously pleasing in my opinion.

Profit in line, but revenue slight miss, on expectations. Cash position much better, but always lumpy due to project sales. Plenty of work in the pipeline, and ongoing growing revenue streams from Accommodation Management.

Shares down approx 2% but still close to highs.