Nordic housing prices are down since the peak in 2017. At the same time, Veidekke’s share price has gone down 30%. However, only 25% of the total revenue is based on housing prices, so this doesn’t look reasonable at all.
Here is my thesis:
The majority of the employees at Veidekke are around 30 – 50 years old. Most own their own house and have had their property double or even triple in value during the last 10 – 20 years. Together with this, they also own stocks in Veidekke, which is also effected by housing prices. My thesis is that the employees have sold some of their shares since they can’t (will not) sell their home, but they want to take some profit in Veidekke now since it’s seems like housing prices have peaked. I find this quite logical, and I think most people would do the same. However, what this means is that there is nothing wrong with the company, but some employees want to take some profit. In other words, perfect time for investors like me to grab some shares.
Let’s state that we are closer to the same industry scenario as in the late 80’s and the beginning of the 90’s. What happened then was that no entrepreneur wanted to build anything. Zero houses, properties, offices, industrial buildings. Zero. I’m not joking. If you worked as an architect, you had to move to Sweden because Norway didn’t build anything. If this is the case, then the future outlook is way worse than what most people think and we should head down a lot further.
But I don’t think this is the case. Newspapers and people love to talk and speculative about housing prices. Most is just noise which we can neglect. Furthermore, the industry is hot. Lot’s of projects and Veidekke seem to do everything right. I’m not worried.
Another important point:
Veidekke just got a contract to build the new project (“registerbygget i brønnøysund” ) and the contract is worth around 800 million NOK.
Now that you know my thesis, let’s take a look at the company.
For me, finding a high quality company with a solid yield is highly important. Having a high ROE for many years is often a sign of a high quality with some kind of moat.
As you know, I want the payout ratio around 70% or lower for most of my companies. Why? Because I don’t want them to borrow money so that they can pay me a dividend. The yield in 2019 also looks sweet!
As you know, dividend growth rates for nordic companies isn’t something to pay much attention to. It’s nice, but nothing to care too much about.
EPS 2018 is based on change in EPS from 2017 and 2018. Total return of 30% in 2018 is unlikely and I don’t expect that the share price will move towards fair value yet. Over time, however, I think Veidekke will turn out to be a superb investment.
Thanks for reading,