英国住宅建筑商：Olesen Value Fund 的 Christian Olesen

With me today, I'm happy to have on for the first time Christian Olesen from Olesen Value Funds. Christian, how's it going?

I'm doing great. I'm really excited to talk about an idea I've followed off and on for the past couple of years. Before we get there, a quick disclaimer: Nothing on this podcast is investment advice. That's always true, but maybe particularly true today because, as you'll hear in a second, we're talking about an international market, which carries heightened risk for any of my domestic listeners.

It's a UK market, so I might say it's a developed market. I kind of think the UK is an emerging market at this point, but neither here nor there. Anyway, Christian, the reason I reached out to you is that you wrote up the UK homebuilders in general in, I believe, your Q3 letter.

This is a space I've been interested in because, as I said, I think the UK might be the cheapest market and maybe the most inefficient market of the larger Western European markets on the planet. So I'm interested overall, and I'm interested specifically in the UK homebuilders. I'm rambling, so I'll toss it over to you.

We're going to discuss the UK homebuilding market. I'd love to start with your overall thesis, and then we can dive in from there.

Thanks for having me on, Andrew. I think you're totally right. The UK market is definitely one of the cheapest stock markets out there. I actually have more than half of the Value Fund's portfolio in UK stocks at this point, and we have a big exposure to the homebuilders in the UK. We currently have 3 positions, and my favorite in this sector is Bellway.

I think the UK homebuilders are a great setup. They're quantitatively cheap, and I think there's lots of upside. Most of these businesses are really good long-term compounders of value, even on a per-share basis. For a long-term investor, I think there's very little downside in some of the UK homebuilders, especially Bellway.

On a risk-return basis, I think it's especially attractive. We have a big exposure to the sector, and we can really do that because, like I said, I think there's very little downside if you're a long-term investor.

That's a great way to frame it. I want to dive into a few things there, but let me start with my favorite question because I do think it helps frame every conversation. The market is a really competitive place. What are you seeing in the UK homebuilders in particular that makes this a risk-adjusted alpha opportunity?

I think the questions are: Why does this opportunity exist, what's the bear case, and what do I see in it that others maybe don't? I think it's actually a pretty simple setup. It's really a cyclical recovery story. I don't think there's much of an intelligent bear case for the UK homebuilders, especially the higher-quality ones, if you're a long-term investor.

The setup is pretty stereotypical for a cyclical. We have an industry where demand is volatile and supply adjusts much more slowly than demand. Unlike in the US, when interest rates went up around 2022, demand for new-build housing in the UK dropped very significantly. I think Bellway's completions are down maybe around 35% compared to before the increase in interest rates.

Whereas in the US, we've seen a different story. We've seen a much stronger market. That's really why the stocks in the industry sold off back around 2022 and why they remain cheap. Investor sentiment in the UK has been quite pessimistic for a long time, and homebuilder stocks have not really recovered to anywhere near their historical average levels in terms of the multiples they trade at.

I think it's really pretty simple: a pretty big drop in demand, pretty fixed supply, and, as a result, the market has just sold off.

I have some questions and pushbacks I'm excited to get to, but maybe the best place to start would be to frame it. You mentioned Bellway a few times, and I don't think the statistics look dramatically different from one builder to the other. You can give it an overall or Bellway-specific perspective, but what attracts you is that you have this cyclical homebuilder trading very cheaply on every quantitative metric.

Maybe we could frame the quantitative cheapness of it just to set the stage. I listened to a presentation you did on it, and you talked about the value you saw if it mean-reverts. Maybe we can also use that to show the upside that people are playing for.

Bellway, as of today, trades at 89% of tangible book value. Historically, depending on how far back you go, it's been about 1.25 to 1.3 times tangible book. Actually, I think that's too low. I think the intrinsic value is at least 1.5 times tangible book, and it has traded above 1.5 times tangible book in the past.

They're still making money. The value is compounding, so the value is growing while you hold it. In addition, I think you'll see a multiple rerating over time. This holds true for pretty much all of the UK homebuilders, although there are some differences between them.

I would also add that Bellway and certain of the other publicly traded homebuilders in the UK—I think there are 8 or 9 left at this point—are really excellent long-term compounders of per-share value. Most of them have very good balance sheets. Bellway has almost zero net debt currently, although that will probably go up a little bit because they're starting to buy back shares and be a little bit more proactive with their capital allocation.

I think it's the type of business where you don't really have a big risk of a permanent loss of capital, even though it's in a very cyclical business. It'll just compound over the cycle, and it's really just a matter of being patient and waiting for the multiples to rerate.

That was a perfect overview. So let me try to give a few pushbacks. My main pushback—and I'm not even saying these are pushbacks; this is just me stress-testing the case—is that it is a UK homebuilder, and it is tied to homebuilding. Ultimately, the value of the homes at some point is tied to the economics of the UK. The UK, to my untrained macro eye, looks like a kind of disaster.

Everybody says, “The best way to get rich in America is to buy a house with an 80% mortgage over the long term.” That’s generally true, but I always joke: Think about the people who bought houses in Detroit in the 1980s, and the city kind of went to hell as all the auto manufacturers went way downhill. I don’t think they did that well on their home purchases.

Given the fiscal situation in the UK, I think you’ve seen a lot of wealthy people fleeing. Is buying a UK homebuilder at 0.89 times price to book relying on the book being reliable? If the book is made up of, in my case, Detroit 1980s land, that book’s going to get cut. I guess my first pushback would be: Are we looking at something where the macro headwinds kind of overwhelm the general cyclicality and the historical quantitative metrics you’ve talked about?

I don’t think so. Fundamentally, I think the demand for housing in the UK in the long run is quite solid. I think it’s underpinned by population growth and probably a little bit of growth in GDP per capita over time. You’re right that currently the UK economy is pretty weak. It’s pretty close to recession, with roughly zero growth, and consumer confidence is quite low currently.

No, I’m just speculating. I don’t disagree, but we have seen a lot of the finance industry leave post-Brexit, and it’s not lost on me that one of the ways cities and states go downhill is that you keep shooting yourself in the foot. From an outsider’s view, it seems to me that the UK has shot itself in the foot for the past 10 years, basically. Yeah.

I think that overstates it, actually. You’re right that economic growth has been pretty weak in the UK, but I wouldn’t call it a disaster by any means. I just don’t see that in the numbers. It’s an economy that I think will continue to grow, albeit perhaps slowly.

If you look at the decline in demand for new-build housing that we’ve seen in the last 3 years or so, in the long run, I think demand almost has to rebound. We’ve seen a huge decline in demand, and that’s really because when people see this big increase in interest rates, it creates a lot of sticker shock. In the UK, you might have bought a home or gotten a mortgage at a 1.5% interest rate 4 years ago. Now it’s maybe 4.25%. At one point, it was higher than that.

Over time, I think the demand for housing is pretty price-inelastic in the long run because housing is a basic need with no substitutes. I think people will pay what they have to pay for housing. We’ve seen that historically: Demand for housing, especially new-build housing, is just really cyclical. You can see that time after time if you go back decades and look at the historical data. I think this is just another example of that.

Just on that cyclical demand and everything you said, I don’t know if there’s a bull case or a bear case. As I said, I’ve done some work on the UK homebuilders, and it’s funny: If you reach out to the IR teams—and this is just my anecdote, so I’m not suggesting it’s 100% verified or true—in general, they’ve suggested to me that the domestic, by which I mean UK domestic, interest in their stocks is nothing.

Most of the outreach is coming from American—generally American, but international—people who are interested in them for all the reasons you’re laying out: They’re quantitatively cheap, they’re at the bottom of the cycle, and all that sort of stuff. I don’t know if that’s a bull case or a bear case, but I find it interesting. Domestically, people just vomit in their mouths a little bit when they bring them up, but internationally, value investors are coming for them, and they’ve historically been popular with American investors. I’m not saying there’s a signal in the noise there, but I find it interesting. I’ll toss it over to you.

I think you’re definitely onto something. It speaks to how out of favor UK stocks are, and UK homebuilders in particular. It also speaks to how little value is left, especially in the US stock markets and maybe also in certain other places around the world, and just how cheap the UK stock market is.

Before we go through the many different ones, how much of this is just a quantitative bet for you? You’re saying, “I’m just going to use Bellway again, trading at 0.9 times book, and historically ROEs are in the low teens, probably closer to the mid-teens through the cycle.” Something that produces mid-teens ROEs should probably trade closer to 2 times than 1.5 times book, and you’re saying, “I’m getting it for 0.9 times book,” and by the way, it has low debt and all that sort of stuff.

Versus how much is this a qualitative bet for you, where you look at the overall UK landscape and say, “There’s a shortage of housing. All the housing trends that have come into play in the US over the past 10 years, the UK is experiencing the same things. Each government is coming in and saying, ‘We’re going to build new housing.’” How would you weigh the quantitative versus qualitative there?

I think it is also very qualitative, but in a different way than what you suggested. I can talk about the thesis you mentioned regarding the chronic undersupply of housing in the UK, which is absolutely true. I just don’t think that’s really going to change very much.

It’s qualitative, especially for a company like Bellway, in that if you study its history going back a few decades, and perhaps especially how the company performed during the global financial crisis, you really see a company and a culture that’s very conservative and has simply been able to compound per-share value very nicely over the very long run. This is a good long-term compounder. It’s not like, say, NVR, which is a US homebuilder with a particularly capital-light business model and which has done phenomenally well, also in part because of its massive stock buybacks. It’s not like that, but I think it’s a really solid business.

I think you also have to look under the hood a little bit and look at the risks when you invest in a homebuilder. I’ll touch on 2 qualitative things there. One is the land market, and the other is home prices in the UK.

Let’s take home prices first. I think this is actually quite important if you’re going to invest in UK homebuilders. There’s quite a divide between London and the UK excluding London. Home prices in London went up a lot after the financial crisis, up until around Brexit in 2016, and then they’ve remained pretty high but relatively steady since then. London is just really, really expensive.

I would worry if I were invested in a homebuilder that had exposure to London. I would be worried about a potential drop in prices in London. I wouldn’t say I’m forecasting that, but I think that’s definitely a risk.

If you think about the homebuilding business model, it’s really like a manufacturing business where you have very substantial inventory gains or losses because you hold the inventory for so long, especially the land. The inventory, quote unquote, is really land and work in process—about two-thirds land and one-third work in process. If you buy land under the assumption that home prices are going to be what they were when you bought the land, or what you thought they were going to be, but home prices drop, say, 20%, you’re going to have massive write-downs and lose a lot of money.

This is the Detroit worry I had, right? You’ve got the land; you’re in Detroit in the 1980s, and then by the 2000s, it’s like, “Well, that land is worth 30% less, and inflation has gone up 20%.” That’s a really big write-down.

Yeah, it’s really the key risk if you invest in homebuilders. If you look at how most of the US homebuilders did, I think almost all of the publicly traded US homebuilders—NVR was the exception—did poorly after the financial crisis because home prices went down a lot, and of course home starts went down a lot.

Well, they also had a decent bit of leverage, too, though, if I remember correctly, right? With Bellway, which you’ve mentioned several times, the nice thing here is that it’s basically net debt-free. So if home prices go down 10% and you’re net debt-free, your book goes—if this is 0.9 times, you’re trading at actual book value after that write-down, right? But if you have 1 turn of leverage, 1× leverage seems pretty reasonable, but then sales go down 10%.

Boom. That’s really how you take the hit.

You might not survive, or you might have to raise capital on extremely dilutive terms.

Just to finish the point about London versus outside of London, if you look at home prices in the UK outside of London, and maybe you look at price to median income or the cost of ownership relative to median income in a long-term historical context, they’re actually very reasonable outside of London. In London, they’re pretty expensive. Bellway, for example, has maybe less than 5%—2% to 4%—of its total completions today in London, and that’s also true of some of the other publicly traded homebuilders over there. I think that’s really important if you’re going to invest in a UK homebuilder; it really reduces the tail risk significantly.

The other qualitative point that I’ll make about the industry is the land market. The land market is very different today than it was just before the global financial crisis. Bellway was actually kind of an exception, but most of the UK homebuilders did very poorly in the financial crisis, maybe almost as poorly as the US ones. A big part of that was because they were buying land in the mid-2000s, up to about 2007, at prices that assumed they were going to sell the homes at much higher prices than they ended up doing.

Land prices dropped roughly 50% in the UK—or residential development land prices dropped about 50%—in the financial crisis. In nominal terms, they have recovered to about where they were at their peak in 2007, maybe even slightly below. But if you adjust for inflation, they’re still probably at least 40% below the peak in 2007.

The reason is that today you have a much more rational industry. You have fewer bidders for any given piece of land, partly because there’s been consolidation in the industry and partly because there are just fewer people who want to be homebuilders today than there were in the mid-2000s, when the housing market was hot. If you look at all of the publicly traded homebuilders in the UK and how they acted historically, you can see that they’re run very differently today than they were before the global financial crisis.

They’ve actually gotten better and are much more conservatively managed. Today, I think they all use very similar models for valuing land and have very similar hurdle rates that they use to value land. They don’t tend to get into the kinds of bidding wars that they did in the mid-2000s. I think it’s a very different situation today than it was then.

As a result, I don’t really see the same kind of downside that we saw then. It’s really a matter of what the downside to home prices is and what the risk is that homebuilders have overpaid for land. I think we’re in pretty good shape, especially if we’re outside of London.

That’s perfect. We’ve mentioned Bellway a few times, and I think at the start you said, “Hey, you’re long three of them.” You don’t have to give the specific ones, but could you give me Bellway and compare it to one or two others? When I see homebuilders, I tend to think, “Oh, it’s a homebuilder,” but if there are any differences in strategy or anything else that people should be thinking about—and you’ve mentioned Bellway several times—what do you like specifically about Bellway, maybe a little bit more than others? I’d love to give people a lay of the land, if that makes sense.

Bellway is a pretty boring homebuilder. It’s a real cookie-cutter homebuilder. They build single-family homes throughout the UK. They have a little bit of an overweight in the northern part of the country, which is where the business originated after World War II.

Bellway has always been quite conservatively managed and has probably been one of the best managed. It really stood out in the global financial crisis for having really good results there. Its return on equity was negative 4% in the fiscal year ending July 2009, which I think was the second-best in the industry.

Another homebuilder I like is Persimmon. Persimmon has a slightly different business model. Bellway builds middle-of-the-road homes, maybe at a slightly below-average price point. Persimmon builds significantly below-average price point homes. They have a model that’s very financially strong, and historically they’ve generated some of the best shareholder returns in the industry.

If you look at return on equity or return on capital on an unleveraged basis, they have a slightly different model. They buy land in a little bit less desirable areas, where they have a lot less competition for the land, and they save quite a lot of money that way. They build on smaller plots as well. Their land costs are 11% to 12% of revenues, whereas for more typical homebuilders like Bellway, it’s closer to 20%.

As a result, Persimmon has had excellent margins and return on capital historically. They also trade at, I would say, around 1.25 times tangible book. But I would say it’s deserved. It actually trades at the highest multiple of tangible book among the publicly traded homebuilders in the UK, but it’s also probably the best or second-best one in the industry. I think that’s also a really interesting business to own at the right price.

There’s a variety of business models in the industry. A lot of them are more like Bellway—the sort of cookie-cutter, geographically diversified companies—generally trading at similar multiples to Bellway, roughly 90% of tangible book value. But I think Bellway has a little bit of a qualitative edge because historically it’s just been a little bit better managed than average, especially if you look at how it did in the global financial crisis. I will say that the rest of the industry has gotten much better run and much more conservatively run than it was before the global financial crisis.

Let me switch a little bit to management incentives. I listened to you pitch this idea, and you mentioned that the CEO at Bellway is a Bellway man. He’s been a company man for probably 25 years, if I had to guess, and rose through the ranks. He’s the CEO. That’s great.

But I worry with all UK companies—not just UK homebuilders. I’ve spent a lot of time looking at them, and the governance there is sleepier than in the US. You’ll see that buybacks are not en vogue. Management incentives are much less aggressive, and people hear “aggressive” and think that’s a good thing; I actually mean it in a bad way. They don’t get paid on total shareholder return, right? They’re really just paid on bonuses, and insider ownership across the board—director ownership—is low. They don’t care about the stock price. When I talk to a lot of the boards, I get the sense that they don’t really care. They’d like it to be higher than not, but they just don’t care that much.

I wrap that all into one overarching concern. We can talk about Bellway specifically or overall, but I look at these and say, a homebuilder with no net debt—that’s nice for the downside protection, but no net debt is really inefficient. I worry that you promote a company man who’s been there for 25 years and grown through the ranks. I’m sure he’s very good at building homes, but I worry that the job of a CEO is ultimately capital allocation.

I worry that this just sits there, they pile cash on the balance sheet, and they run a sleepier business model. Maybe Christian’s right, but the return on equity, instead of being 14%, is 10%, and you buy it at 90% of book value. You probably do okay, but we’re not talking about screaming risk-adjusted alpha.

I know they recently announced a buyback. I’ll let you talk about that. I just want to throw out the idea that these guys have had the stock price in the doldrums for the past couple of years. I’m not seeing lots of opportunities to pull that lever and create their own destiny, so I’ll throw all that over to you.

I would certainly prefer to see a more shareholder-aligned compensation structure, but I don’t think that it’s a sign of a management team that’s not shareholder-friendly, because it’s really a cultural thing. In the UK, it’s customary to have less aggressive compensation plans than it is in the US, so I wouldn’t read too much into it.

That being said, I will say that I think it is changing. It’s not like it’s terrible. Bellway’s management does have equity incentives, and they do have equity ownership, but it’s not at the level you would love to see. Especially coming from a US background, it doesn’t look great.

It would be better if it were more shareholder-aligned. But if you look at what the company is actually doing and how they’ve done historically for shareholders, I think it actually looks pretty good.

Bellway recently announced a new capital allocation framework. They have bought back stock a couple of times in the last few years. I think that's a sign of a change in how companies in the UK approach capital allocation.

They just announced another stock buyback program recently. As the market presumably recovers over the coming years, I think they will do even more buybacks. I think this is probably a change that's likely to stick for the long term.

They're also more focused on utilizing the balance sheet better. Their net debt to total capital, if you include the debt-like land payables that you'll find in accounts payable, is roughly 5% today, and they're going to bring that up to about 15% to 20%, I believe. So the balance sheet is going to be a bit more efficient, and that'll be accretive to shareholders. I think it's a good catalyst for the stock, potentially, as well.

And I think that, even at that level of leverage, the balance sheet is still strong enough to withstand a really severe downturn. You want that as a shareholder, right? You don't want to suffer a large, permanent loss of capital because there's some sort of unexpected massive downturn, a depression, a war, or another pandemic. Who knows? A major real estate pandemic might be good for them, man. In a pandemic, people might be moving out of London and into the outskirts. It might be great for them.

Yeah. I mean, you never know. But there are always tail risks, and having a strong balance sheet is what prevents those unexpected situations from turning into a permanent loss of capital for shareholders due to dilutive equity offerings or bankruptcy. At 15% to 20% net debt to total capital—which I think is pretty similar to what Bellway had right before the GFC—it should still be fine.

It's interesting about the homebuilding business model that, in a downturn, you actually generate a lot of positive cash flow because you're not buying much land and you're not building as much. So you're reducing inventory, which is land and work in progress, as well as the roads, sewers, and things like that. That frees up cash, and that also helps. I think Bellway will still be fine. I still think it's going to be a sleep-well-at-night investment, even with that level of leverage.

The last thing about their new capital allocation framework I'll mention is that they're going to be more focused on just asset turnover. So I think that, first of all, it is actually changing in a tangible way now at Bellway, and I think it may have a little bit to do with their new CFO. I don't know. It's probably also just a sort of general trend among UK publicly traded companies. I wouldn't want to overstate that. And maybe also just the fact that they're sensitive to shareholder value, not least given the fact that we're in a downturn, right? Shareholders want to see a return on their investment. So I commend them for doing that. And again, the fact that shareholder incentives are not like they are for a lot of US companies, it's a cultural thing, and I would not read too much into it.

I think you hit the nail on the head. It is a cultural thing, but as I keep saying—look, we said at the start, right? I said, "Hey, more American investors are interested in the UK homebuilders than UK investors." And guess what happens when you start getting a roster full of American investors? Culturally, you might not be able to change quickly, but the American investors vote. As you get more American investors, they're going to start demanding a little bit more.

I've had friends who do a lot more in the UK than I do, and they tell me, "Look, culturally, it's slow. It takes time." But you are starting to see it right at Bellway. A £150 million, if I remember correctly, share repurchase plan will get executed over the next year. That's 5% of market cap. It's not huge, but it's also not nothing. I think you're going to keep seeing the push for that. You are seeing more share buybacks across the board in the UK. It starts slowly, but it keeps building on itself.

I do think there's a little bit there. I kind of rambled on that incentive. Is there anything else you want to say on the incentives or anything?

No, nothing to add on that.

Let me just ask one last question, and maybe we can touch on some other stuff. I do want to ask—I’ve alluded to this several times—there's a ton of cheap stuff over in the UK, right? I think somebody who listens to this podcast might say, "Okay, Andrew and Christian both agreed that there's a ton of cheap stuff in the UK. The fiscal picture might be a little bleak, whatever. Why not go find stuff in the UK that has a lot of international exposure and gets thrown out with that bathwater?"

No names are jumping off the top of my head, but there are plenty of stocks in the UK that have some UK presence but also have a lot of international presence, in the same way that the US has Apple, which has a heck of a US presence but also a heck of a lot of worldwide presence. So I think people might say, "Hey, if you're looking at this as a UK-is-cheap play and we're comping Apple stock, there are other things that trade below book value in the UK that have a lot of international exposure. Why do you want that homebuilder risk versus just going elsewhere?" I realize it's a hard question to answer, but I'd love to put that to you.

Yeah, I think in principle, you're absolutely right. I don't really have anything along those lines. I tend to focus a little bit more on the small caps.

Small caps in particular in the UK have been really attractive and really cheap for a while, and still are. That's where I've found the most value. But in principle, I think it's totally logical, and there probably are some opportunities like that.

Yeah. No, I've just been fascinated by the UK market. You know what I love about the UK market more than anything? I love that the companies have to file the Form 4s every day and tell you if they're buying back shares. Every day I wake up and I'm like, "Oh, these 6 companies—another day, another buyback."

Yeah, I get those every single morning.

We've hit on the UK. We've got about 5 minutes left, and I'd love to bounce around a little bit. We hit on the UK homebuilders. What else in the UK are you interested in right now?

The other things I own in the UK are fairly idiosyncratic. I do own some distributors in the UK, but they're in different businesses. A lot of things in the UK that have some sort of housing exposure are maybe particularly cheap.

We own a distributor of mostly wood panels. It's called James Latham. It's a really boring, illiquid micro-cap—super high quality, not quite as cheap as Bellway, but super safe and high quality, probably around 10 times earnings. So if I were going to look for cheap stocks in the UK, I would be looking for things that are housing-related in some way, or where demand is impacted by the really low consumer confidence that we have in the UK right now.

The economy is weak, but consumer confidence is really low in the UK. Obviously, that's affected stocks like James Latham because wood panels are seen as housing-related, as they are. It's more for the repair, maintenance, and improvement market than the new-build market in this case. But that's where I would look.

In the UK, I think the themes are really just homebuilders. Anything that's exposed to consumer confidence and small caps—I think there are a lot of really good ones. Outside of that, for me, it's pretty idiosyncratic.

Makes total sense. I've had multiple friends who do a lot with Travis Perkins and a few other distributors. They've talked about them a lot. As you said, anything in the UK—Wickes, the do-it-yourself home-improvement company. I've looked at that a few times, and it looks very cheap, but it's a retailer and it's got the home-improvement play. Anything that touches the consumer is just crazy.

I look at these Form 4s and think, "Hey, man, if these stocks don't go up, these guys aren't even pushing it to the max on the buybacks." If these stocks don't go up, you're going to get 10% of the stock bought back every year, plus dividends and more free cash flow on top. Unless the whole thing goes into a depression, it's kind of hard to see how you get hurt.

Also, the UK government—I mean, you probably know more about it than me—but it seems like they realize they're in a tough spot because they are starting to talk about repealing the stamp taxes and everything. We need to be a better place for international capital and domestic capital, that sort of stuff. So it seems like you've got a lot. The valuations are there, and you've got a lot of the tailwinds.

Yeah. And you mentioned the new UK Labour government, which has been there for about a year and a half now.

Even though they're viewed as being a little bit business-unfriendly for the homebuilders, I would say they've probably been a net positive because they have improved the planning process for getting planning permission for housing developments. And that actually is a little bit of a tailwind for the homebuilders. Even the business-unfriendly parties, I think, are increasingly starting to realize—I mean, you've got them here in America—the housing situation is at a breaking point.

If they don't get a handle on it and start approving housing, the one way to solve the housing problem is very simple: build more housing. If they don't get a handle on that, they're going to get voted out. So even the business-unfriendly ones, I think, are getting that.

Last question there is always an interesting one. I think in the late 2010s, the homebuilders—and I'm thinking domestic, not international—did well in part because the housing building permits were so restrictive that prices really ran up, and you really saw it after COVID. But they benefited from the restriction, and it kind of reminds me of oil. All these oil execs want to “drill, baby, drill,” and they want permits everywhere. It's kind of like, “Be careful what you wish for.”

I'd love to end with that question to you on the UK. If you get more supportive policies that allow for more homebuilding, is that a bull case or a bear case for these guys?

I think it is a net positive for them because they will be able to turn over their land banks faster and their volumes will go up. I think it'll be a plus for the intrinsic value, and maybe even more so for the stock prices.

You're right, though, that the constrained supply in the UK—which is mostly because of a very difficult environment for getting planning permission for new developments—is a real underpinning for their asset values. Bellway trades at 89% of tangible book value, and that's inherently valuable land and work in progress. I think just about every plot they own, someday they or somebody—probably themselves—will build something on there and make money on it. Land is just inherently valuable, especially if it's bought reasonably intelligently.

So, on the one hand, the constrained land supply really underpins the asset value. On the other hand, I do think it would be a net positive for them, especially for the stock price, if the volumes really started going up, and I think the volumes would start going up. Although that also depends on demand.

Like I said before, I think it's just a matter of time before demand normalizes or the government comes out with a demand stimulus program. This is something we didn't touch on. I think it's a potential positive catalyst for the sector. We have not had a demand stimulus program for new-build housing in the UK for a couple of years now. That's actually quite unusual, and there's some speculation that the government would create one at some point here in the next year or two, perhaps.

Perfect. But Christian, I think we did a nice job walking through—I mean, look, UK homebuilding is a big sector, but it's not a crazy complex sector. I think we did a nice job walking through the risks, rewards, and opportunity. Obviously, Bellway was a focus, but I always want to turn it over to you: Is there anything you think we just skipped over, or anything you think we kind of glossed over that we should hit harder?

I think we covered the important stuff. I would just say, in summary, that I think the upside is quite meaningful. I could easily see Bellway trading at 1.5 times book value, and that book value is increasing even now with depressed demand. So, going from 89% of book to maybe 1.5 times book over the next couple of years, with the compounding on top of that, I think the upside is actually pretty nice.

But—and I would really stress this—I think for a long-term investor, the downside is quite small. This is a sleep-well-at-night investment for me, and so on a risk-adjusted basis, I think it's really one of my favorite investments.

Fantastic. Well, look, that's why I wanted to have you on. I love to have smart people come on to talk about their favorite investments. So, Christian Olesen from Olesen Value Funds. This has been great. We'll have to have you on for a second podcast in the near future, but I appreciate you coming on to walk us through homebuilding across the pond, and we'll talk to you soon.

Thanks for having me.