Fundamentally Furloughed

Thanks mate, really enjoyed that.

Personally I agree with you, I see L&G as a Buy. I think there will always be demands for their products and whilst adverse market conditions impact them from a risk perspective, they have a strong balance sheet to cope if necessary.

Tasty dividend indeed :cake:

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Great read, thanks @jcksmith850

LGEN are a long term hold for me. Their foray into pre-fab/modular housing is interesting: https://www.legalandgeneral.com/modular/

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Thanks for the feedback!

The home building aspect is very cool. I was surprised at the amount of innovation these guys are taking on. They didn’t get their high ESG rating for nothing after all!

I’ve just started my holding in Legal & General so thanks for the analysis. Your review reaffirms my belief that this is a good, solid investment, hopefully! The dividends are an added bonus.
If you’re still taking suggestions would it be possible to take a look at Ocado? They’re an interesting company to me with their own propriety logistics technology as well as a number of new and upcoming partnerships with retailers. It seems the markets agree as well, - the share price has shot up in recent weeks…

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Ocado is an interesting one. For a long time they were a real dog of the exchange, however they have shot up with COVID-19 as being one of the few grocers in a strong position to handle the influx (and even they struggled at first.)

It’d be exciting to see what announcements they have done and what they look like now.

I’ll give them a quick look to see what makes for some readable content! Part of the write ups is me having fun researching the companies!

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Ocado - OCDO (Hold)

Thanks for the suggestion @Master-Sharefu!

With COVID-19 sending the UK into lockdown, grocers have seen a massive uptick in orders and bulk buying. The frenzied buying behaviour has created unexpected volumes and logistical issues for several firms.

Ocado who have pioneered online grocer logistics and automation were in an excellent position to take full advantage of the panic buying. Does this translate into a stronger future for Ocado? Will they take these strong few months and convert the gains into something greater in the future, or have they wasted this lighting in a bottle moment?

What Does Ocado Do?

Ocado now considers themselves more of a technology company than an online grocer. What happened and what does this mean? Think about Amazon. They made their money as an online marketplace, while they were doing this they created new technologies and services to support their growth, these innovations were viable businesses on their own.

The story is somewhat similar but without the Amazon success story. Ocado’s focus has been on using technology to reduce waste, increase accuracy and speed, and ultimately create more margin where the industry couldn’t. Running a grocer chain is not a high margin business, Tesco has a 1.5% profit margin, so using technology and controlling the vertical value chain is a potentially untapped winner.


Source: 2019 Ocado Strategy

Retail, this is a D2C (direct to consumer) offering, currently, this is a partnership between Ocado and M&S. Originally offered in partnership with Waitrose. It’s a five-year joint venture where it’s expected that M&S will take over the venture and Ocado will move on.


Source: 2019 Ocado Strategy

UK Solutions & Logistics is all about white labelling their different technologies and services. For example, they have a joint venture with Morrisons where they offer the complete service on their behalf. Or they can offer their technology on a licence basis. Right now this makes its money from Ocado Retail (fees), a few select partners who use parts of their offing and Morrisons.


Source: 2019 Ocado Strategy

International Solutions is selling their technology and systems into new markets where Ocado doesn’t have a presence. This is highly speculative as they try to help a brand become a market leader with their technology (in terms of online ordering.) Ocado is still in the position where it’s cutting fees to win deals, this is a very long term business line.


Source: 2019 Ocado Strategy

Finally, we have the Innovation and Ventures arm of the business. As a tech business, they invest in small startups and future trends e.g. indoor vertical farming. There have a big interest in robotics and AI. Improving efficiency and accuracy while keeping costs as low as possible.

How Do The Fundamentals Look?

While COVID-19 has given Ocado a boost they are still recovering from a building fire last year.

With almost £100m in damages, plus lost business and stock, the insurancers have been slowly paying back the cost. The claim of £74m has been received and accepted, however, the last full year statement only £24m was recognised due to the payments being received over time.


Source: Genuine Impact Ocado

With a weak quality rank, a horrific value rank, they have a very surprising momentum rank. I’m keen to dig into the numbers behind the summary to figure out why the momentum is so high if everything seems to be priced in?


Source: Ocado 2019 Annual Report

Let’s pick out the key numbers here. £1.75bn of revenue, £1.164bn spent making that happen. Which still leaves over some money! Then we add the admin costs, distribution costs, and the joint venture loses. We end up with a £0.21bn lose before tax. With some creative accounting about their assets (warehouses, vans, and the insurance payout) we end up making £0.04bn. Not an impressive figure when you compare it against the headline.

However, this was the full 2019 report, we are one quarter in and we have been seeing in the news how successful Ocado has been. The issue is, we don’t have the quarter one numbers yet! So we are stuck with speculation. This goes a long way towards explaining the high momentum. Analysts are making predictions on the next quarter which we know should be better than expected.

Back onto the numbers we have. The profit margin is -12.06% (suddenly Tesco’s 1.5% doesn’t look so bad?), they don’t pay dividends, but they seem to be in control of their debt?


Source: Wallmine Ocado

As a company with lots of physical goods and assets, it’s much easier for them to appear more sound due to the amount of inventory and equipment they hold. The cash flow has also been recently boosted by the insurance payouts.

As the company isn’t turning a profit, they have increased sale volume but not profit, and good results are expected. The share price has rallied, which has completed destroyed the value metrics.


Source: Google Finance for Ocado

A price to sales ratio of 7.70 and price to book of 12.69, this is a stay away, red flag warning, for any diehard value investors. With so much expectation baked into the price, it’s going to be hard to increase the value but easy to have a disappoint that send it crashing back down.

With sentiment on our mind, and expectations. What are the sell-side experts saying?


Source: Genuine Impact Analyst Ratings

We are looking at a fairly even split, but with the Q1 announcement tomorrow, we are seeing a small shift towards a buy rating.

However, keep in mind this is being driven by higher than expected views on the revenue. We still aren’t seeing high earnings expectations or even a meaningful improvement in the target share price.


Source: Genuine Impact Target Price

Expected returns refer to the target share price and it’s increase versus the price now. The expected growth is the percentage growth for revenue and earnings.

With a very low target share price, we are at the high in terms of the current price. As there are no dividends to look forward to, you only have the share price increases as a way to make a profit.

Why A Hold?

I’m very much on the fence with this one. I would almost lean towards a sell rather than a hold. We are at an all-time high, it’s an expensive business which is heavily investing in speculative future bets, and we are still recovering from the 2019 fire.

Ocado is also in proceedings against T0day and others for IP theft, which is currently a negative on their balance sheet due to legal fees. The cash injection with the partnership (over £500m from M&S) is nice but we’ve seen their ventures cost as much as they make.

I wouldn’t be in a rush to sell off my Ocado shares, they are an interesting and innovative company, but if you want to free up some capital this would be a prime target in my mind.

If you don’t hold Ocado I would not consider this as a purchase right now. Wait and see for the announcement tomorrow, and see what the new estimates and growth looks like post-COVID-19.

Let me know your thoughts! Have I missed anything you wanted to cover, or maybe some more information you want analysing?

Thanks for reading and stay safe!

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@jcksmith850 Thank you for taking your time to do these, they are super insightful. I was wondering if you would consider writing a post on your thinking process when analysing a business more generally and details on the tools (sites, apps etc) you use along the way?

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Hey @jcksmith850, thank you so much for these analyses. I bookmark this thread for my dinnertime reading haha and it’s very informative! :relaxed:

Wanted to ask if you have any views on Trainline? It’s coming up on a year (I think) since their IPO, and the impact of COVID-19 on decreasing nos. of passengers and travelers have surely taken a toll on their business. With lockdown easing (and the looming possibility of a second wave… :cold_sweat:) I’m wondering what the future of the travel industry (not even long-distance travel, but day-to-day commuting and e-ticketing for example) would be! Thank you! :clap:t3:

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Very enjoyable reading thank you for the time and effort!

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Good morning everyone, thanks for the kind words and I hope everyone had fun with the crowdfunding! 100% in less than 5 minutes :tada:

This might be an interesting post. For my personal investing and any requests I do follow a similar process. Thinking about it, it’s probably really messy :smiley: this could be a fun one to write about. One part I don’t touch on is when to buy. After deciding a company is a buy I don’t really discuss a good entry point, technical analysis is not my thing. Then again maybe my process can help others?

They have done their full 2019 report a few days ago (they call it their FY 2020 as their business year isn’t calendar annual) and they had this note.

Impact of COVID-19 and outlook for FY 2021:

  • Significant impact on trading in Q1 FY2021 to date as a result of COVID-19 lockdown, with UK and European passenger volumes currently down >95%
  • Confident Trainline can navigate even an extended downturn if necessary given significant liquidity headroom and mitigating actions taken, whilst maintaining investment in the Group’s strategic priorities to drive long term growth
  • As previously disclosed, c.£150 million liquidity headroom expected as at end of May, with monthly cash outflow from operating costs and capex reduced to c.£8-9 million
  • Group will update on guidance for FY 2021 once visibility improves

Source: Trainline Investor Relations FY2020

The FY2020 doesn’t include any lockdown impact, and we haven’t seen a quarterly statement with updated figures. So any analysis I look at is using non-COVID-19 data.


Source: Genuine Impact Trainline

Knowing these are older numbers mean the quality rankings will be off, they should be much worse. Same goes for Value. It’s ratios against the current share price but it still uses data from the balance sheet. Momentum is pretty much the only valid thing right now if you are looking for shorter term COVID-19 impact.


Source: Genuine Impact Trainline

I was surprised to see analysts do think there is a future and they are split on this being a buy or a hold. No one is suggesting you sell and get out fast.

They haven’t posted when the next announcement will be but based on 2019 the Q1 results should be first week of July.

They are being very tight lipped and seem to be in a bit of trouble. They have made a bunch of cuts so they survive (and I expect they’ll take on some loans to make sure they have cash flow during this time.)

It’d be harder for me to make shorter term predictions. I try to find exciting longer term companies. Right now I am avoiding the travel industry. Even Warren Buffett has said he made a mistake and has sold all his airline holdings!

I think the trend of companies doing more working from home, plus TFL and other rail operators running reduced services with increased costs, makes it likely we will see additional bailouts for these operators as they are critical to the nation, and generally not that profitable. As long as they are around Trainline will be too. It might just be a much smaller and more streamlined operation!

Thanks for the kind words! I’m glad so many people are enjoying my research and opinions!

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Loving these write ups, any chance for RTX?

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How I Analyse and Invest

Thank you @nimrod22 for the suggestion. I figure this would be a good time to talk about the steps I take when looking for an investment, and how I analyse any stocks or ETFs which get suggested.

I have also cleaned up the first post to include quick links to each analysis piece, also to provide some timestamps against my views in aggregate!

Screening and Discovery

When I’m not getting suggestions from the kind commentators on here, I have a few go-to places to find trade ideas.

News Sources

I find Business Insider useful for a summary on the markets in a macro sense as well as anything exciting happening right now.

Additionally, I check out the daily Finimize email. I like these guys in terms of bite-sized news stories. This is more “water-cooler” talk.

Stock and Fund Screeners

If I am looking for a dividend or raw datapoint, then I like the stock screener on Wallmine. Easy enough to use if you are looking for high dividend yield companies to investigate.

When searching for new investment ideas I use Genuine Impact. I tend to look for high-quality companies with strong momentum that does not have a low-value rank.

I’ve also used Simply Wall St for investment ideas but I prefer the rankings over the checklist approach. I find these guys are a merge of Genuine Impact and Wallmine, but I like to reference them from time to time.

If I am looking for an ETF and want to slice and dice my options more I like to use JustETF and their screener. A nice way to find an ETF with a particular focus to then investigate.

Get The Summary

When I know what stock or fund I want to investigate my first check is a health check with Genuine Impact. Normally I’ve checked out the top factors (the free stuff) and I am looking into the details now.

First I checkout profitability, a poor rank here normally means they aren’t profitable yet. I then assess the expected returns, I want this rank to be as close to #1 as possible. High target share prices are very attractive to me. Expected growth of revenue and earnings is also attractive but I often find this is priced in, still a good reference point.

A quick check on dividend yield to see if there is one or not, not too influential to my process but may change when I invest (I’ll have to look for the ex-date.) The rating change is important to me, knowing if sell-side analysts are changing their view a sign of what is happening in the immediate term. Having no buy ratings, or overwhelming sell rating is a massive red flag for me.

Understand The Company

Next up is figuring out what the company does and why. Easy way to find this is a Google search for “company name investor relations” this should take you to the investor site for that company.

I am looking for a few key documents. Reports and documents (I like the powerpoints to get a nice summary of what is happening.) Events calendar which shows dividend timings and when the earnings are announced. Tools like Genuine Impact, Simply Wall St, and Wallmine are using the fundamental data from the last report. If the last report wasn’t for a while then (e.g. due soon) I will often hold off any decisions until there is more clarity.

Additionally, I like to look for the strategic vision or anything which details their longer-term plan. I want to see future investment or innovation. Situations, where they are not innovating, or assume they will keep market share, with no consideration for new disrupters, is also a red flag.

Full Year Earnings

This is a key document for me. After looking through the high-level PowerPoint (which simply paints the best possible picture) it’s time to dive into the last full-year earnings release.

Most of my time will be spent reading through this document. There is a lot of fluff, but also a lot of warnings and expectation management. Was does this document mean for the future.

You can read through the full financials if you are an account but I find them very boring. Rather this is where I move over to Wallmine to checkout the ratios and headline financial figures. You can get the same data on Yahoo Finance but I find the interface and experience way nicer on Wallmine.

I’m looking for the ratios behind the summary rankings. What is the profitability, is it growing, do they have strong cashflow, are they taking on more debt than they can handle. Is this a high revenue, high-growth investment?

Latest News and Views

At this point, I should have a feeling if this company is as good as the first few health checks and screeners said it was.

Now it’s time to understand what is happening for this company right now, and also to get more detail sell-side analyst views - in particular target price.

First I search Google News for “company name share price”. I am looking for financial pieces related to the company. By adding share price it filters out a lot of random comments and stories which don’t impact my investment. If I do make an investment and it’s a company I wouldn’t naturally be keeping up with, then I also set up a Google Alert for that search query (pro-tip, setup some email filters as the subject lines are predictable, then you have an easy reference point for your investment daily news.)

Finally, I want to check out the sell-side analysts for a target and to double-check the coverage. I use Marketbeat for this. Wallmine does analyst coverage for US stocks by for UK stocks I use Marketbeat. I’m not a fan of the site interface and find it annoying but it gives me the data I need.

The Missing Bits

What I haven’t covered is portfolio construction, allocation monitoring, trading timing, and when I decide to exit an investment. For right now this is how I find and then analyse a potential investment.

The idea is to have a broad first bucket and then filter out stocks and funds as the process becomes more time-intensive.

Hopefully, you’ll see a few new tools, or suggest some tweaks or new tools for me!

Bit of a break from security analysis but I’m keen to pick up another stock/fund tomorrow. I’ll have a look through the suggestions or checkout any recent earnings for an interesting new company.

Thanks again for reading and I’m looking forward to your comments!

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Thanks so much for sharing this. It’s not just the resources that are super helpful (some of them new to me), but also showing the discipline that comes with it. Really appreciate the insights and knowledge you are bringing to this already amazing community. Keep it up! :+1:

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Thanks a lot!

I’ll look through this thread and see what would make for an interesting write up today, or maybe checkout one of the upcoming dividend companies. There is a lot of love for dividend firms on the forum and one of the members has put together a really good web page that I wanted to checkout a bit more.

If nothing else this is great for my confidence :star_struck:

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Awesome content, thank you for putting the effort into each contribution!

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Taylor Wimpey - TW (Buy)

Thanks again to @SpyrosL for the suggestion. We’ll be looking at a British classic (with some operations in Spain) today, the home builder Taylor Wimpey. They saw their share price being slashed with the COVID-19 outbreak, however, their staff have returned to work yesterday and they are optimistic for the future.

With several COVID-19 announcements, full-year results already out the way, and the next update coming on the 29th of July, we have some time to assess the company and potentially take a position.


Source: TW Corporate Information

What Does Taylor Wimpey Do?

It’s always good to have a refresh of the different business lines for each business. We’ll look at the last annual statement to see how they explain their revenue lines and work from there.

House building private sales, this is where Taylor Wimpey will build new homes on land they have purchased, and sell them directly to people like you and me. This business is half construction and half sales. TW will get a large lot of land, build some new homes and supporting local infrastructure, and then sell this “ready-made” community.

taylor homes
Source: TW 2019 Annual Report

House building partnership sales, rather than TW doing everything themselves they also partner with numerous other firms as a joint venture. In these cases, the other firm may handle sales, or provide the land, or it’s simply a joint project between the two.

taylor joint
Source: TW 2019 Annual Report

Finally, we have the land buying aspect of the business. Finding and purchasing prime lots of plan, getting building permissions, and developing the area. While this is part of the building sales, they do occasionally sell land as well. While this is a smaller part of the business they did make £37.9m in 2019 selling land.


Source: TW 2019 Annual Report

While not a business line, TW also runs a lot of their building materials and sources the supplies required efficiently. It’s worth mentioning as this is one of the factors involved with optimising your margins, controlling more of the value chain involved with home building.

taylor supply
Source: TW 2019 Annual Report

As mentioned they are expanding out into Spain as well.

taylor financial
Source: TW 2019 Annual Report

For a relatively new aspect of the business (in housebuilder terms) commanding an impressive 26.7% profit margin in a new country is worth taking note. The UK does come with higher wages and more of the businesses operational costs, it’s encouraging to see highly profitable international expansion.

What About COVID-19?

I can, and I will, go into the financial and look at the fundamentals but right now there is one question on our minds.

Will they survive through COVID-19, how have their sales looked, what happened to all the homes under development, what has happened to their cash flow? That may have been four questions but the point stands.

They made two key decisions on the 24th of March. Firstly they have stopped all discretionary land spend. Then they started drawing down their unutilised Revolving Credit Facility of £550m, resulting in a gross cash position of £807m and net cash of £165m. Finally, they cancelled the dividend until the situation was better understood. As a high dividend payer (even during down periods of the year) this would have been a nasty blow to many investors. Though cancelling this year’s dividend means a cash flow saving of roughly £485m.

In April we had another update. The directors took a 30% pay cut, no cash bonuses will be paid (equity is fine) and no annual pay increase.

At the end of April, a trading update was released. The key takeaways were, the order book increased in value to roughly £2.6bn which is still a £300m increase on the same period last year. The cuts and credit facility meant they had a gross cash position of almost £836m still. They had moved to virtual home viewings, were still making sales (slower than expected but still up on last year), and Spain was starting to ease up on the lockdown rules. Additionally, they started looking at land opportunities again, seeking to maximise on the discounts from fearful sellers. They even secured the UK’s first significant remote planning permission for a joint venture of around 750 homes with Waltham Forest Borough Council in East London.

Finally, on Wednesday we had another update. With the UK’s government telling employees in the construction sector to return to work, this was the moment TW was waiting for. Surprisingly housing market conditions have remained stable with signs of increased sales activity and customer interest, giving a very positive sign that TW will be returning with a bang. While it will take a few weeks, the plan is for TW construction to be underway on the majority of their sites across England and Wales this month.

Fun fact, during the lockdown period TW sold 408 homes net of cancellations, averaging a net private sales rate of 0.30 homes per outlet per week. Some people took up baking during the lockdown, others brought their dream home!

How Are The Fundamentals?

After some surprisingly positive news, while they fell short of their growth target for the year on year numbers they are still ahead of last year, we can look at the overall company.


Source: Genuine Impact Taylor Wimpey

These are some very strong ranks. Do take the quality with a pinch of salt. The last financial results did not include drawing down £500m of debt.


Source: Wallmine Taylor Wimpey

Looking in more detail about the quality, we can see a very healthy cash flow rich company, even if the profit margin is on the tighter side (15%.) Previously we can see the financing cash flow was negative, as they paid off debts in favour of more attractive terms. The next financial update will give us more flavour as to what this means. With a maturity date of just under five years, this debt was taken on as a protective measure.


Source: TW 2018 Presentation

Good thing they extended this in 2018!

In terms of the value, the massive slashes in share price has TW very attractively priced. With a 40% discount and strong activity even during the lockdown, TW is in a very strong position given the value of their assets. 1.51 price to book ratio and a 6.80 price to earnings, will raise some eyebrows. We are expecting lower results this year but all signs are pointing towards a faster than expected recovery.


Source: Google Finance Taylor Wimpey

We are expecting to miss targets, we have seen a bit slash in value, and a large amount of debt has been taken on which will need to be paid back. Does this mean everything is priced in already?

The lower momentum rank makes it seem like a slow recovery is on the books.


Source: Genuine Impact Expectations for TW

While the expected growth, the revenue and earnings, is very low we are more interested in the return. The target future share price.


Source: FT Factsheet for TW

With a medium 12-month target price increase of 26%, half-year results just over a month away, and a quick return to business as usual. This looks like a strong shorter-term play.


Source: Genuine Impact Analyst Ratings for TW

The sell-side analysts also have a generally optimistic view. With the stagnant period being much shorter than expected, and home safes not disappearing, there is a lot to love here.

The market has priced down TW very aggressively on the assumption of no more home sales, it looks like this has not been the case. Even if we enter a second wave we know that TW still can sell homes (just can’t finish them!)

In Summary

I would describe any investment in Taylor Wimpey as an investment in British recovery. If you are optimistic about exiting lockdown and the slow unwind to “normal”, this stock represents that optimism.

Ultimately it is in the British mind that we must become homeowners. With over 1.2m homes needing to be built, Taylor Wimpey will always have a place and purpose. This year will be a more challenging one which will focus on share price recovery. I’d expect from 2021 we will be returning to our increasing dividend and hopefully the continued profitable expansion into Spain.

Let me know what you think, is this a company you are interested in or trying to avoid?

I know this isn’t a comparison but hopefully, a deep dive into one homebuilder helps shine some light on what COVID-19 is doing to them.

As always, thanks for reading!

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Great write up - cheers Jack

I already have a medium size position on TW. It was doing really well until the lockdown!

But I see them coming out the other side relatively unscathed and business will boom, so I’m still buying more shares while they are cheap.

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If you have a position already then now is a really good time to get some extra shares cheap.

In July we’ll get an update on the first half of the year and their plan going forward. I’m expecting/hoping that is when we’ll get a solid all clear or what to look out for.

Hopefully if they keep up their trading updates with such positive messages we’ll see little share price spikes along the way too.

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I agree, and just used the last cash in my account to buy more.

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Great write up. Have held tw for a few years and have been adding more lately. I think there are plenty more swings to this share price given ok going uncertainty so I’ll be focusing on managing our own household expenses and trying to pick up some more tw.

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