Tuesday, 06 November 2007 05:00

Straight talk from a homebuilder CFO: BZH downgraded from special situation crap to worst in show...

For those of you who go to dog shows, they have the term best in show for the best dog overall... since all builder stocks are dogs, my lowest rating is worst in show and I award it to more than one dog... because i'm nice

Losing the worst in show rating is very very hard......  it means you suck so bad I question your viability... perma red thumb

thoughts on macro bankruptcy count

The editor of big builder magazine appears to agree with the consensus that 1 of every 3 large builders (both private and public) is going to go under... unofficially we are at 4 of the top 200 so we have another 46 to go...

In a previous blog dated 9/25 I had stated that 8 publics of the 21 I track would be going bankrupt, delisted or bought by bondholders at a lower price than they were trading at....  I don't track AVTR (and they are a top 50 homebuilder), but my percentage was 36% if you include AVTR....  Going forward I will track their numbers too...

Beazer downgrade to worst in show

One of the homebuilders I had as a potential bankruptcy was BZH.  However, on my 20 of 20 blog post I had BZH as a special situation crap pick.  In other words, this stock is a piece of crap, but because of the lack of visibility it is hard to tell how bad their situation is...

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Well accidently, I missed some of their numbers on their 8k dated Oct 5...  in reading an analyst report this morning I grabbed these missing numbers and put them in my spreadsheet....  wow!!!!  they are bad!!!!!  after the 8k was issued the stock started trending down to the 8s, but shot up huge on the short covering rally...

Here are the numbers that concern me

68% cancellation rate (worst among the publics)  remember, a cancellation a lot of times can result in a future unsold spec depending upon the stage the house was in when cancelled... both a cash drain and will have to be sold at a deep discount to move..

YOY orders drop 52%... again the worst among the publics for the most recent quarter!!!!!  remember there are 21 I track and you are number 21 in these 2 important categories

Monthly sales absorption per community.. because I dont have an updated community count I used Junes... they are averaging 0.7 net sales per community... guess... that is right #21 of 21 builders...  my god I can't even believe this number.... 

There is a lack of visibility in backlog, but my estimate is 2.3 months.... worst in the industry...  remember how long it takes to build a home... call it 4 months... so if you drain your backlog where is the cash coming from during that 4 month period of cash out flow with few sales from backlog?

Now they did increase their cash position to 400 million, however, they had as of last quarter a debt to capital ratio of 58%....  not worst in the industry but in the bottom 1/3

Thus, I have no choice but to downgrade BZH from special situation crap to worst in show....  this thing will probably tank when they (if they ever) provide us financials

also, they spent 18 million towards the bondholders to get them to amend the bonds so that they didn't have to report their financials within the time period allocated... another total waste of 18 million

Last modified on Tuesday, 06 November 2007 05:00