The offer for Countryside Partnerships PLC (LSE:CSP) from a US fund highlights bargains in the housing sector but the bid may not be successful, analysts said on Monday.
San Francisco-based Inclusive Capital Partners went hostile with a possible cash offer of 295p per share after saying the FTSE 250-listed company “would not engage” after it made private offers, nor provide access to its books for due diligence.
In-Cap, which said it owns 9.2% of CSP shares, said its offer price was a 31% premium to the closing share at the end of last week and 28.5% from 7 April when Countryside posted a strategic update.
The offer represents 1.3 times historic book value, or circa 12 forecast earnings for the 2023 calendar year earnings and around eight times the 2024 earnings indicated at the time of company guidance last year, said broker Peel Hunt.
“On balance we would be surprised to see the offer accepted at the current level, with many of the company’s top shareholders supportive of management’s turnaround strategy,” said Peel Hunt analyst Sam Cullen.
The offer brought the old stock market saying that ‘you can have good news and cheap stocks, just not both at the same time’ to mind for Russ Mould, investment director at AJ Bell.
“There has been precious little good news at Countryside Partnerships for a while but the share price plunge to five-year lows has drawn a bid from Inclusive Capital, to suggest they thought there was a bargain to be had.”
He noted that the whole UK housebuilding sector trades on 1.2 times book value and just over eight times forward earnings, with balance sheets that are showing net cash in aggregate.
While it is easy to argue that life “could be about to get a lot tougher for the housebuilders,” says Mould, given the cost-of-living crisis, rising interest rates, increased cladding costs and regulatory scrutiny, Countryside has set aside £81mln to cover remediation costs for cladding.
Before the bid, Countryside had a market cap of £1.2bn and, according to its first-half accounts, £1.2bn of inventory and £0.2bn of cash on its balance sheet.
Mould cited the old rule of thumb for builders’ shares to represent potentially good value when they trade equal to NAV or less, but be expensive when they trade at two times or more.
“Countryside was trading toward the lower end of that range, and several FTSE 100 and FTSE 250 builders still do.
“Even Inclusive Capital’s 295p-a-share offer does not take Countryside’s stock to the top of that 1.0x to 2.0x times range for historic NAV so a counter bid, or at least a higher offer to clinch the deal, cannot be ruled out completely.”
Housebuilder · P/NAV (hist) · p/e (2022 est EPS) · Div yield (2022 est) · Div cover
Crest Nicholson · 0.81 x · 6.3 x · 6.5% · 2.47 x
Vistry · 0.85 x · 6.4 x · 8.7% · 1.80 x
Bellway · 0.92 x · 5.8 x · 6.1% · 2.81 x
Redrow · 0.99x · 5.8 x · 5.8% · 3.00 x
Barratt Developments · 1.01x · 6.5 x · 8.8% · 1.76 x
Taylor Wimpey · 1.12x · 6.6 x · 9.1% · 1.67 x
Berkeley Homes · 1.64x · 10.9 x · 5.5% · 1.68 x
Countryside Partnerships · 1.66x · 9.5x · n/a · n/a
Persimmon · 1.99x · 9.3x · 10.7% · 1.00 x
1.23x
AVERAGE · 8.4x · 7.8% · 1.71x