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Mixed Results Help The PIN Fund to Breakeven in Q3 2020

Peter Hemple, looks at how our fictional PIN Fund performed in the third quarter

With the exception of Rightmove, the other nine companies in our Fund either started paying a dividend again, and had a rising share price in Q3 or they abstained from returning to paying a dividend and investors clearly abstained from buying their shares. Overall, the Fund made a small profit of 0.2% in the third quarter, compared to a 5% loss for the FTSE 100.

Two of the five housebuilders in the Fund (Persimmon and Berkeley Group) have started to pay dividends to investors again and both had rising share prices in Q3 as a result. However, the other three house-builders have not announced a return to dividend payments and their share prices fell in Q3, especially Taylor Wimpey, which slumped by 23.8% after rising by 21.5% in Q2.

The Taylor Wimpey share price ended Q3 at just 108.6, which is down more than 50% from its peak in February at 237.7. But if some housebuilders have enough confidence in the UK housing market to start paying dividends again, it most likely won’t be too long before the other housebuilders follow and when they do it is likely that their share prices will rise as investors buy back previously sold shares. This could mean that the likes of Taylor Wimpey, Barratt Developments and Bellway currently present an opportunity to gain some exposure to UK housebuilders at bargain basement prices.

Numerous reports by estate agent chains have provided evidence of pent-up housing demand and according to the Bank of England, mortgage approvals rose sharply in August. At 84,700, it was the highest figure since October 2007.

Taylor Wimpey has a healthy balance sheet thanks to raising more than £500m from a share placing in June, which obviously had a negative effect on its share price. The company has a market cap of around £4bn, its current P/E (price-to-earnings) ratio is only 5.3 and earnings are likely to improve in 2021 (assuming we can avoid more lockdowns next year).

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