Private Investor: Dirt cheap doesn't mean it's a bargain
Saturday 21 June 2008
Looks like I managed to call the house-builders right. My sixth sense, if you like, told me they were a bad bet, even at the current depressed valuations. Well, when I say sixth sense, I suppose I really mean the published accounts and trading statements, especially of Barratt Developments.
This household name has lost some 95 per cent of its value at its peak, and this week it lost another 10 per cent of the remaining 5 per cent. I think there is more pain to come here, though the renegotiation of its banking covenant seems to have given the shares a fillip.
The banks won't let it go bust, that's for sure, because running a bank is bad enough without having to run Barratt's land bank as well. What would you do with Barratt's plots and half-finished homes? So Barratt, like other house-building firms, will stay listed, but it seems destined to become a penny share, a victim of overextension, the credit crunch and its own banking covenants.
Just because something is dirt cheap, doesn't mean it's a bargain. As I said last week – and it's nice to be vindicated for a change – bottom-fishing doesn't mean just buying the "cheapest" shares out there. I wouldn't buy Barratt at any price.
Mind you, my recent investments in the bombed-out banking sector haven't been great either. The last time I looked, my holding in Alliance & Leicester was down 23 per cent. I only started buying into the stock at the end of last month. Every time I think it can't go lower, it does.
It's difficult to believe that a few years ago the shares were looking at the £10 mark. Now they're barely above £3, and have halved in the space of a year.
So I've bought some more, and this time have the distinction that I really have bought at the bottom – the all-time low, so far, of 304p. They dropped by a colossal 6 per cent on Thursday on the back of some more gloomy predictions about the housing market from HBOS. Yet its views didn't seem that much more miserable than any of the other authoritative views on real estate we've seen over the past few weeks. It looked like a classic case of overreaction on the back of admittedly discouraging developments.
Longer-term, I think we've all been a bit spooked by Northern Rock. In a way, the Bradford & Bingley saga is more apposite. Not a happy tale, to be sure, with a failed rights issue and ever higher arrears in the buy-to-let market, but at least someone wants to buy into Bradford & Bingley, even if it is an American private equity group.
That, you might recall, was what was supposed to happen with Northern Rock and was supposed to – and actually did – place some sort of floor under the Rock's share price, until hope ran out. Even on the eve of nationalisation, the shares were still worth about 100p, I think, and were trading freely.
My point here, then, is that the very worst of the credit crunch might be over and that the interest of private equity groups in snapping up the smaller brethren in the field at bargain prices is probably undiminished. They know a good deal when they see one. For those shareholders, like me, who have been buying at the bottom of the Alliance & Leicester market, that should be good news.
Even if Alliance & Leicester has to go to exiting shareholders for more money, the new Financial Services Authority rules on short selling during rights issues should do the trick in protecting the interests of investors.
There should be no attempt by the authorities to try to circumvent this by allowing the likes of Barclays to abolish the rights of pre-emption enjoyed by existing shareholders. It is a violation of the rights of property, and I hope that bodies such as the Financial Services Authority, London Stock Exchange and the UK Shareholders' Association will be doing their bit to resist companies indulging in such practices.
Leaving Barclays out of it, and talking in general terms of principle, the scope for abuse and corruption in such deals is abundantly clear. Pre-emption rights turn existing shareholders into extremely effective regulators. Besides, it is their business and they need to be helped to stop careless or incompetent managers seeking an easy way out of their difficulties.
So I think most of the banking sector's troubles are "in the price", though the price does seem to be shrinking every day.
- 1 Michelle Watt's father says TV presenter killed herself because she was in constant pain
- 2 Nathan Collier: Montana man inspired by same-sex marriage ruling requests right to wed two wives
- 3 'Help me I'm trapped in a factory' messages keep being found on bottles of vitamin water
- 4 North Korean defector flees to Finland 'with evidence of chemical testing on humans'
- 5 Greek debt crisis: The photograph that conveys the despair of Greece's elderly
Greece crisis: IMF was pushed around by Angela Merkel and Nicholas Sarkozy – and now it is being humiliated
Nathan Collier: Montana man inspired by same-sex marriage ruling requests right to wed two wives
Forget little green men – aliens will look like humans, says Cambridge University evolution expert
'I wish the BBC would stop calling it Islamic State' – David Cameron unleashes frustration at broadcaster
Greece crisis: The wider lesson is that it’s time to abandon this failed experiment in currencies
Girl, 7, stares down hate preacher at Ohio festival with pro-LGBT rainbow flag gesture
iJobs Money & Business
£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...
£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...
£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....
£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...
Day In a Page
Previously two semi-detached properties, this five-bedroom home is spread over three floors with a large breakfast kitchen, orangery, office and gym on the second floor.
This five-bedroom home enjoys countryside views over the Blyth estuary to Southwold, offering flexible living space with a ground-floor annexe - ideal for use as a holiday let.
Close to the market town of Eye, this four-bedroom detached home offers a double-height living room which takes the place of the original, 19th-century, chapel nave.
Dating back to the 19th century, this four-bedroom home needs modernising. Spanning three storeys, the red-brick house has a fireplace, a small terrace and a cellar.
Just outside of Cambridge, this single-storey home offers three double bedrooms, a living room with vaulted timber ceiling and ladder steps that lead to a mezzanine study area.
This six-bedroom Georgian home is on three floors with open fireplaces, a two oven Aga, an annexe, and cottage gardens with outbuildings and a car barn.
A former coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, an attached office, kennels and an outbuilding that's currently used as a gym.
Located beside an impressive Victorian viaduct, this four-bedroom home has an open-plan living area that is glazed on two sides, with skylights and high ceilings.
A former furniture workshop, this three-bedroom home has high ceilings and painted brick walls, in a village setting only fifteen miles from the coast.
This five-bedroom stone townhouse features a pine staircase and an Inglenuk fireplace, double doors from the lounge give access to an enclosed courtyard.
This five-bedroom, detached home blends traditional and modern design; the sleek kitchen features a gas hob and oven set within an exposed chimney breast.
Moored in Chelsea's Cheyne Walk, this houseboat offers two double bedrooms and a teak deck that's ideal for al-fresco dining.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B or countryside retreat, subject to change of use permissions.
This Grade II-listed three-bedroom home is situated on a private road, just a short walk from the sandy beaches of Frinton-on-Sea.
Less than five miles from Malmesbury, this four-bedroom cottage comes with equestrian facilities and gardens that extend to approximately three acres.
Spanning three storeys, this late-Victorian five-bedroom farmhouse is a spacious family home with a modern interior and B&B potential.
With an original church arch, this triplex one-bedroom church conversion has a light, spacious, feel and comes with a secure off-street parking space.
This recently-refurbished three-bedroom home has bi-folding doors that lead out to a decked seating area - ideal for alfresco dining this summer.
Well-located for coastal walks and popular restaurants, this detached four-bedroom home offers views over farmland, to the Solent, the Purbecks and Bournemouth.
If you love high ceilings, school conversions like this one are bang on the money. This two-bedroom flat is minutes from Burgess Park and the foodie haven at Borough Market.
Set within a church conversion in Bermondsey, this two-bedroom maisonette combines existing features, such as original arches and brickwork, with a contemporary finish.
In the pretty market town of Bungay, this grade II-listed Mill House is arranged over four floors, offering four bedrooms and three reception areas.
This four-bedroom Edwardian home offers a combination of original features and contemporary design after a renovation by the current owners.
This four-bedroom home offers a vaulted ceiling in a breakfast room that's ideal for summer entertaining with doors that open to the patio and garden.
On the market for the first time in more than 50 years, this six-bedroom home is a project with vast potential - spread over three floors of living space.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Surrounded by rolling countryside, this four-bedroom barn conversion comes with a self-contained, one-bedroom annexe that could serve as an office or a holiday let.
Located near Harrogate town centre, this five-bedroom Victorian terrace is arranged over three storeys while a current study serves as an optional sixth bedroom.
A ground-floor flat in a country house, located a mile from Sway; this two-bedroom home would make an ideal weekend retreat on the edge of the New Forest.
On a popular residential lane in Caterham on the Hill, this four-bedroom family home offers a secluded garden and a convenient location for local schools and public transport.
Just a short walk from Westerham green, this three-bedroom cottage has a light kitchen with exposed brickwork and double doors that lead to a south-facing garden.
In a prime spot opposite the River Thames, this one-bedroom flat has an 18sq ft reception room with glass doors that open out to a private terrace.
Set in the hills above Llanwrda Village, west Wales, this 18th-century three-bedroom farmhouse has holiday-let potential from a separate barn conversion and annexe.
This charming end-of-terrace townhouse is arranged over three floors, with two double bedrooms and a private courtyard garden located at the rear of the property.
Located in the University area, this semi-detached five-bedroom home is arranged over three floors - there's even a rear garden and off-road parking too.
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.