Ann: Half Year Report and Accounts, page-9

I think you are all starting to sound like the cheerleaders from a certain biotech forum.

So, to keep you grounded, I'll be the naysayer.

To me this result had many hallmarks of defensiveness about it, starting with the miserly 7% lift in the dividend.  The payout ratio is 30%, which has been falling for the past few years.

DH2011: 36.1%
DH2012: 38.1%
DY2013: 36.4%
DH2014: 33.5%
DH2015: 30.3%
DH2016: 30.1%


I suspect, based on the following data, that the hot money in the market is likely - in its infinite wisdom - to pick up on that the growth is slowing and conclude that the "cycle has peaked", and is starting to roll over.

Meaning that as long-term owners of businesses such as Reece, we might be able to add to our holdings at lower prices, if we are so inclined, in coming months:

Half-on-half NPAT Growth (% change on pcp)
DH02: 31
JH03:  -4
DH03:  18
JH04:  44
DH04:  31
JH05:   17
DH05:  10
JH06:  19
DH06:  18
JH07:  20
DH07:  16
JH08:  5
DH08:  -9
JH09:  -16  (GFC effect)
DH09:  18
JH10:   11
DH10:  4
JH11:   4
DH11:  -3
JH12:   -3
DH12:  -5
JH13:  -2
DH13:  10
JH14:   26
DH14:  19
JH15:   24
DH15:  24
JH16:   18
DH16:  8


On a less trivial note, one thing that has struck me about REH results over the course of the current cycle "buyoancy", is that the business has failed to generate the sorts of returns on assets and on equity, as it has done historically.

ROE (%, based on half-yearly NPAT, annualised)
DH01:  19
JH02:  25
DH02: 21
JH03:  20
DH03:  21
JH04:  25
DH04:  24
JH05:   25
DH05:  23
JH06:  26
DH06:  23
JH07:   27
DH07:  24
JH08:   25
DH08:  20
JH09:  19  (GFC effect)
DH09:  21
JH10:   19
DH10:  19
JH11:   18
DH11:  17
JH12:   16
DH12:  15
JH13:   15
DH13:  15
JH14:   17
DH14:  17
JH15:   19
DH15:  18
JH16:   20
DH16:  18

Returns certainly appear to be undergoing some sort of structural moderation.  Compared to previous business cycle "highs", ROE appears to me to be some 500bp lower.  A not insignificant delta.

If memory serves, @MarsC, you raised this as a point of contention some time back, and I recall discounting it, arguing that it was due to the investment phase involving the roll-out of new outlets and the establishment of supply chain infrastructure that was doing it, and that when the point of maturation was reached, the unproductive capital, that had been a drag on returns, would start to earn its usual keep as usual.

Well that isn't happening, and based on the return profile which I think has been sub-par for several years now, it leads me to conclude that the return being generated on the incremental capital that is being invested is, by sheer arithmetic, materially lower than historically achieved, and that I would like.

Any comments?