Yet Another Value Podcast - David Capital Partner's Adam Patinkin thesis on asset light house builder, Vistry Group $VTY.L

Episode Date: January 7, 2024

Adam Patinkin, CFA, Managing Partner at David Capital Partners, LLC, joins the podcast to discuss his thesis on Vistry Group PLC (LSE: VTY), UK’s leading provider of affordable mixed tenure homes. For more information about David Capital Partners, please visit: https://davidpartners.com/ Chapters: [0:00] Introduction + Episode sponsor: Alphasense [1:28] David Capital's background and investing philosophy [7:07] Overview and history of Vistry Group $VTY.L + David Capital's background with $VTY.L and why Vistry is interesting to Adam [18:39] Partnerships business - what is it? [27:04] What is unique about Countryside's business model (Vistry's competitive moat) [36:25] Why Adam thinks that Vistry's future growth is going to unlock, despite trading flatish for last 15 or so years [43:10] What "Mixed Tenure Project" means [48:02] Partner pushback? [52:40] NPC comparison [56:17] What breaks the Vistry thesis?[1:00:55] UK housing cycle - where are we at[1:06:02] Vistry valuation + growth prospects [1:16:25] What is the sell-side missing[1:22:38] CEO comp package and newly appointed board directors[1:25:22] Vistry exposure amongst UK funds Today's episode is sponsored by: Alphasense This episode is brought to you by AlphaSense, the AI platform behind the world's biggest investment decisions. The right financial intelligence platform can make or break your quarter. AlphaSense is the #1 rated financial research solution by G2. With AI search technology and a library of premium content, you can stay ahead of key macroeconomic trends and accelerate your investment research efforts. AI capabilities, like Smart Synonyms and Sentiment Analysis, provide even deeper industry and company analysis. AlphaSense gives you the tools you need to provide better analysis for you and your clients. As a Yet Another Value Podcast listener, visit alpha-sense.com/fs today to beat FOMO and move faster than the market.

This episode is brought to you by Alpha Sense, the AI platform behind the world's biggest investment decisions. The right financial intelligence platform can make or break your quarter. AlphaSense is the number one rated financial research solution by G2. With AI search technology and a library of premium content, you can stay ahead of key macroeconomic trends and accelerate your investment research efforts. AI capabilities like smart synonyms and sentiment analysis provide even deeper industry and company analysis. Alphasense gives you the tools you need to provide better analysis for you and your clients. As yet another value podcast listener, visit Alpha-Sense.com slash FS today to beat FOMO and move faster than the market. That's alpha

dash sense.com slash FS. All right. Hello. Welcome to the United Other Value Podcast. I'm your host, Andrew Walker. If you like this podcast, it would mean a lot if you could rate, subscribe, review wherever you're watching or listening to it. With me today, I'm happy to have on my friend Adam Fadink. And Adam is the CIO of David. capital. Adam, how's it going? I'm doing well. It's snowing here in Chicago, so everything is as it should be, and I'm really excited to be on the podcast with you today. I'm super excited to have you on as well. We'll get there in a second. Just before we do, remind everyone, a quick disclaimer up front. Nothing on this podcast is investing advice. Always true, probably particularly true today,

just because we're talking about an international stock. So most of my listeners are domestic. Remember, that carries a little bit of extra risk, a little bit of extra things you need to consider. But look, Adam, I am so excited to have you on. First podcast of the year, I have been trying to get you. You're one of the most thoughtful investors I know. I've been trying to get you on since almost literally the day that I launched this in the depths of COVID. We finally got you on. I'm super excited for this.

So the company we're going to be talking about is Vistri. And it's actually got a really fascinating background that David Capital has very much been involved with shaping, preparing for, you know, what I think you kind of think and what might be like, their moment in the upcoming year 24, 25, 26. So I don't know. I guess we can dive into history or if you want, we can dive into a little bit of like kind of David Capital's background and how you guys kind of shape the opportunity that's about to come. Wherever you want to go, I'm ready to go. Yeah, let's do it. So, you know, just a little bit of background. And I echo or my compliance folks would echo that please do your own research as always in every investment, but in particular when you're looking at something overseas like Vistri is. Vistri is a three billion

pound market cap UK house builder. And I will go into that in a second. But maybe it'd be helpful to just start with a little bit about David Capital. So we are a investment firm based in Chicago. We also have offices in London. We launched with 2 million in assets under management. And today we manage over 150 million in assets, a combination of having new investors coming in and also compounding capital over time. Most of the people who, oh, I just said, most of the people come on the podcast probably managed two to 10. So you are, you're the dream. You're living the dream that all the people are coming on, but it's not a straight line to get there, but working hard to build something and do it the right way. Do it with, by treating your partners

really, really well and coming at things with an independent approach. So maybe I think that there's maybe two comments I'd like to say and then we can we can jump into Vistri. So first, I think it's really important when you are doing investing that you know what your philosophy is, that you know what your approach is when you decide, you know, what's going to make it into the portfolio and what won't. For us, on the long side, we follow a philosophy called value plus a catalyst. And that means that we're looking for stocks of companies that are meaningfully undervalued, but also have a clear event path that we can point to and say, this is how a misvalued stock is going to become fairly valued. So we never buy a stock just because it's cheap. We always have

to have that fundamental event path. And to us, what a catalyst means is some kind of fundamental change to the business. And so we really look for true. transformations where a company is going from maybe earning less to earning more and doing so in a higher quality way. And that very much fits Vistri as we talk about it today, that transformation of a business to something very high quality that's going to be a lot more profitable. The other thing that I think is worth saying is that we take great pride in being as objective and data driven as we can be. And being, I guess another way to frame that is being independent thinkers. And so on a number of occasions, including a couple of

couple times in the last few years, talking about COVID and then also on inflation, we've taken a couple macro views that were very data-driven and very non-consensus, and we've ended up pretty much being right on both of those because we were willing to go to the source material and do the data and analysis ourselves. And so, as you'll, again, see with history, we've done an enormous amount of work, and it hasn't just been relying on Southside analysts or press reports or whatever. We have done a lot of fundamental work on the ground. We've talked to all kinds of players in space. And we, you know, have made our very best effort to know this company independently as well as we possibly can. So I think that those two things hold investors in good

stead if you have a clear philosophy that you follow and if you do your own work. And that's very much the ethos of David Capital. I love it. I love it. So let's start this. I completely co-signed echo, you know, sometimes I really like what you say we have a philosophy of value with the catalyst because I think sometimes where I have lost my way in the past is where I found a situation and it's like something that's interesting, but not squarely in my wheelhouse, if that makes sense. And I love the thought, hey, we do value with the catalyst. Everything that goes in is value with the catalyst. So like, if I come to you and I'm like, hey, I'm pitching spirit merger. We're like, oh, maybe that's interesting. But, you know, spirit merger is for me. That's not

value with the catalyst. Or I know a lot of people have had for me where it's been is like the garpy type companies that are growth at a reasonable price. Like, yeah, I see a lot of these and they make tons of sense to me. But personally, whenever I put one in my portfolio, like, it just doesn't fit my investing style. And I end up trading it really poorly where it's like, you know, for a year, it's flat. I'm like, oh, it's not quite working out. And then the next year it was like, oh, why do I sell it? Like, I'm with you. I like the catalyst angle to having value and stuff. I like paying low multiples. I like having a catalyst to get the money back. No, they're here nor there. I'm rambling. Let's talk. No, but it is. It's really important. It's really important to have a clear philosophy and to follow

that philosophy. Be disciplined. To your point, I would never do a merger arm. That's not what we do. And so it allows us to really focus our sourcing on things that'll actually make it in the portfolio, which, you know, I don't know, my old boss used to say 80% of the value in investing is through sourcing is through finding the right ideas to work on. And so we know what we're looking for. We're very disciplined around that. And we go find those really rare, compelling opportunities where we think we can underwrite kind of a 40% annual return. So we're trying to find doubles over two years or triples, quadruples, and tuples over. three to five years, but where there is that transformation happening, there's a clean balance sheet, there's positive free cash flow, there's a really strong management team. We need all of those pieces. And so it means we're very careful and it's hard to get into our portfolio, but if it makes it in, it's a pretty special opportunity. It sounds so easy when you say underwriting double over two years. It sounds so easy. Let's turn to Bistri. I'm also laughing because you might be the most prepared podcast guest I've ever had on. We were talking earlier and you said you listened to 15 hours

a podcast this. I know you've been interviewing past guests. So I'm laughing because you're probably prepared for all my questions. But why don't we talk history? And I guess the simplest way to talk is, you know, over the last three years, I think, as you said, the thought here is they're about to have an incredible run, 24 to 2026. We're going to talk business, all that. But there is some history here that's helped set them up for this. So why don't you talk about the history here first and how David's kind of helped set them up for what should be a great 24, 25, 26th? Yeah. So, I mean, I think that the best place to start is to talk about an American company called NVR. So NVR is a U.S. house builder. And for a long time, it was a traditional U.S. house builder, which means it was land led. And it was actually, it was the results of a merger in the 1980s between two regional builders in the D.C. metro area. It's actually based in Virginia, but in the D.C. metro area. And they combine. And they followed this kind of land-led strategy. They used a little bit of leverage around it.

And then they got caught over their skis in the early 1990s when there was a housing downturn. And NVR actually went bankrupt in 1992. When they reemerged from bankruptcy towards the end of 1993, the CEO there, a guy named Dwight Schar, he decided to adopt a different approach. Instead of being acid intensive, he decided to go asset light. And what that meant was he would not start building a home until he'd already sold it. Instead of buying land and holding a bunch of land on your balance sheet, he would do. it via options and he would only exercise those options after he'd already sold the home. And as a result, the return on capital, which I measure is operating profit divided by capital

and employed in the business, it more than doubled from the mid-teens into the low to mid-30s. And if you look at the stock from 1994, the first year that he adopted this approach till today, well, in 1994 it was a $5 stock and at the end of last year it closed at $7,000 a share. It was a 1400x return. And the reason is, because if you have a well-run house builder that follows an asset-like model and then takes all the excess capital from that model and uses it to repurchase shares on the open market, you have set up a framework for terrific compounding. Maybe to say it another way, if you'd put $1,000 into NVR in 1994,

today it would be worth $1.4 million. So now let's talk about Vistri and YVR. Yeah, that's perfect. Yeah. So with Vistri, Vistri is following the NVR model. It is an asset light house builder. It is taking all of its excess capital and it is buying back shares with it. But I think more than just what NVR did, which again, 28% a year better than Apple, better than Microsoft, better than Berger Hathaway. Vistri earns a higher return on capital than NBR did. It is growing faster than NVR did. And it's starting off at a lower valuation than NVR trades at. And so when we look at those kind of returns, what we're saying is this isn't just NVR 2.0, this is NVR on steroids. And so this is the prize. This is what we were kind of focused on. And this is why we were involved in it and have spent so much time working on Bistri is because that narrative, that ability to follow in the footsteps of MVR, which has been an extraordinary stock, one of the best of the last generation. to do that again, it's just a really big prize.

So we first, you know, maybe let's go to the history. So we first met Vistri at the end of 2017. So I've been focused, literally the first thing I worked on, the very first day I started as an analyst back in 2007 was the UK housing market. We had a position in a company called LSL Property Services, which was a surveyor and an estate agent. And the question I had from my bosses was, what's going to happen to the UK housing market?

is it going to be difficult, like the U.S. housing market was going through some challenging times in 2006 and 2007 and they were worried the same thing would happen in the UK. So I literally started my career looking at the UK housing market and I've looked at every company, whether it's an estate agent, which is like a real estate broker in the U.S. or a house builder or property platform or, you know, essentially anyone who touches the housing ecosystem. So the CEO came by our offices, the CEO of countryside, which is kind of the predecessor eternity here, came by our offices in late 2017. And he sat down with us and he said, you know,

hey, we've got our house building business, a traditional house building business, but we also have this partnerships business. And he started talking about how it's asset light and has all these growth drivers and it's this remarkable crown jewel. And we said, well, this is amazing. You're being valued as if you're a traditional house builder on book value and you're not getting any credit for this wonderful partnerships business. And he said, I know, which is why at some point I intend to separate the businesses. And I just need a little bit more time to get them both to scale so I can successfully separate them. Now, fast forward 18 months, now we took a position in early 2018, fast forward towards to late 2019. And I was in London at their results presentation.

And I literally asked the question, are they at scale? The answer was yes. Is there any reason why these can't be separated? The answer was no. And so we were really excited. Okay, we have a chance to get, you know, the next version of NVR. But there was a hiccup, which was the CEO, his wife, had gotten in a bad car accident. And as a result of that, he needed to step away from the business to take care of her. The company put in place an internal hire. They did what's called a desktop search where they don't look at other potential candidates. They just looked internally.

And they put in place as the new CEO, a guy who was pretty underqualified and didn't have the same facility with strategy in capital markets, and he started to walk back the idea that they would separate the business and become pure play. This drew the ire of investors, and a really well-credentialed and respected activist investor called Browning West got involved. The principal there is a guy named Usman Navi. They're based in Los Angeles, and he'd been really successful going activist on a company called Domino's Group Pizza in the UK, which is the master of franchisee in the UK and Ireland of Domino's. And literally, it was a situation where the CEO was not on speaking terms with the franchisees. I'd never seen this in my entire career. Usman went in. They changed the management

team. They got all their relationships back on where they should be with the franchisees. And now the company is growing at the fastest pace that's ever grown at, their buying back shares. Usman has done a terrific job with Domino's. And he bought an 8% stake in countryside. That was very interesting to us. Now, the company tried to push him away. They said, okay, we will do a strategic review to see about going pure play partnerships, but they didn't commit to it and they didn't bring him on to the board. They kind of stiff-armed him a little bit. And so we saw an opportunity where if we could raise a pool of capital to go activist ourselves

independently, it would kind of tip the scales so that now you would have, you know, not just one, but two voices advocating for this really sensible approach that they had been on previously, which is to go pure play partnerships. So we raised a pool of capital. We ended up having a lot of conversations behind the scenes. The company was still trying to stiff arm investors. We ended up going public in the Times, which is the number one broadsheet paper in the UK in April of 2021.

And within 24 hours, the chairman of the board resigned. Within three months, the company came out and announced it was going peer play partnerships. And within nine months, the CFO was gone, the CEO was gone, and Browning West had a board seat. So it was a really effective kind of activist effort. But then, kind of as you know, you and I know having invested for a long time now, life isn't that simple. It's not always done in a straight line and we got a curveball, which is having one board member for a guy who's really capable like Browning West, it was not enough.

And the company struggled to attract a great CEO because a CEO wants to work with a great board, and this board had a track record of picking the wrong CEO and needing activists to come in and kind of set them on the right course of strategy. And so they struggled to get a great CEO. At this point, a third activist came in, inclusive capital, which is run by Jeff Ubin, who's a well-known activist. He was a co-founder of Value Act. And Jeff made a bid for the company, which led to a strategic review process. And ultimately, what happened was, us and four other large fund managers, we all signed irrevocable commitments to support a stock-for-stock merger. It was almost 40% of the shareholders. We signed irrevocable

commitments. This is all public. It's on public domain. I'm picturing the slide in my head, the Vistri Countryside merger slide, like literally page three or something. It's 39% of the shares. You rounded up from 39% of the members have signed irrevocable commitments, and it also said Inclusive has agreed to support this merger and will not bid on the company again. So I remember the slide very public very clear yeah and so you know when that happened the board you know the chairman he literally kind of walked away from the board because he knew he'd lost the support of shareholders and countryside's board to its credit it then facilitated the merger and so when you think about why we were so supportive of the merger i would say there's two reasons to jump out

one is that um while we were getting a premium on the day prior to the merger announcement Vistri's shares were valued at a 60% higher level than countryside shares, but if you took all stock in the deal, countryside shareholders owned 52% of the company. So, you know, you can do the math on that, but it was a nice premium for us. The other bit was, and the more important bit, was that Vistri's management team is terrific. And I'm sure, you know, you feel the same way, but, you know, the one thing you learn in investing is you can never overrate the quality of management. You want to be aligned with the best. And industry CEO, a guy named Greg Fitzgerald and his whole team, is terrific. They're the best in the sector. So we were able to resolve without hurting

ourselves, because we did a stock for stock merger at a premium, without hurting ourselves financially, we were able to get in place the best management team. And since then, it's gone extraordinarily well. So they announced early last year. So the deal closed at the end of 2022 in November of 2022. And then in 2023, they raised synergy estimates in March. They approved a new compensation plan to retain the CEO in August. In September, Vistri announced that they're moving to a pure play partnerships model where they're fully exiting the house building business. And they're going to be a pure play business by the back half the next year. And then in December, they just started their share buyback program. So all the things that we kind of wanted to see,

they're now in motion. And so really, it feels like this is NVR in 1994. in 1995. The buyback program has started. We're going pure play. The valuation is low and all that value creation, all that upside is in front of us. And now a quick break to remind you that this episode is brought to you exclusively by AlphaSense, the AI platform behind the world's biggest investment decisions. AlphaSense gives you the tools you need to provide better analysis for you and your clients. As yet another value podcast listener, visit Alpha-sense.com slash FS today to beat FOMO and move faster than the market. That's alpha-sense.com slash FS.

So I've got tons of question, and I'm jealous that you brought up the NBR comp before I did. I mean, obviously, I think you're probably the point to win the NVR comps for Vistry, but you're not the only ones to throw that around. But before we dive into that cop, I do just want to quickly, can we talk about the partnership business, right?

Because this is going to be the focus going forward. This is going to, it is the UK business. It's not purely NVR-like where NVR was getting options. I mean, there is working with government entities up. So can we just quickly talk about what the partner business of Vistri is, why such a tract all that before I start like making the NBR comps and asking a few more questions on that? Yeah, of course. I mean, I think that this is, this is great and let's let's dive into the details on it. So when you think about the UK

housing market, most UK house builders are what are called traditional or volume house builders. So I'm going to use that interchangeably. The traditional volume house builders. And how they are set up is that they are land led. And this is particular to the UK. So in the UK, they have a really difficult planning permission process, essentially to build in the UK, and this has been the case for 75 years now, there are these local planning boards that have final say over whether you get to go forward with your project or not. It's not how it is in the U.S. In the U.S., there's a lot you can get approval on a state level, on a federal level, on a local level, with a county, with a city. There's all different ways to build in different

people or different entities or organizations have different jurisdictions. Not in the U.K. It all goes through these planning boards, and they're very difficult to deal with. There's a lot of nimbism, and there's an effective cap on how many homes can be built every year because this planning process is so lengthy and challenging. And so the model that the traditional volume house builder has come up with is first you buy the land, then you work it through the planning permission process, and once you get planning permission, you build it and you sell it as fast as you can. And the building and the selling, even though, of course, it's core to the business of house building,

That's not how housebuilders differentiate from one another. In some ways, that's, I don't want to quite say commoditized, but it's not the differentiating factor. All of the public house builders are good at building. All of them are good at selling. Where you differentiate is in buying land very well and in working it through the planning permission process very well. If you can do those things well, that's how you generate strong returns as a traditional

volume house building. And so that's the model. They buy the land. They hold the land in their balance sheet. It's very capital intensive. you work it through the planning permission process, and then you build it and sell it as fast you can. Countryside, and I'm going to use Countryside and Vistri interchangeably.

Countryside was the company, but then once it was merged with Vistri, that is the brand of the partnerships business. So Vistri is the Topco is the company, but it operates. There's no Vistri brand to the consumer. Countryside is the brand that it does its partnerships business through. So the partnerships business. operates a little bit differently. So again, I'm sorry to go through the history, but I think it is important. So after World War II, the UK housing market was a mess. The Blitz had

destroyed or damaged two million homes, and you have the same baby boom happened in the UK as happened in the U.S. A lot of new families and just not enough housing. And so the UK launched a massive public house building program, and they built seven million homes over the next 25 years, more than half of which were public homes. And they went under the control of regional governments that are called local authorities. They're kind of a mix between states and counties is a way to think about them. But they're essentially, you've got the federal government and then you've got local authorities. There's 371 of them across the UK. And they control millions of units of affordable housing, of public housing. So fast forward 50 years. Now you're in the 1990s. And these local

authorities, which are regional governments, they're facing two really difficult problems. One is all these homes that were built or developments that were built in the 40s and 50s, they're falling apart now. They're not up to code. They're not up to standard. And they were desperately in need of regeneration, of fixing up and renewal. The other issue is that there had been six million affordable homes that are called council housing or council estates. That's the nomenclature report. But in 1980, and this had started in the 1970s, but there was a movement to allow people who are living in affordable public housing to buy those units so that they could own it themselves if they'd been long tenured. And that was kind of enshrined into law in 1980 through

what was called right to buy under Margaret Thatcher. And as a result of that, millions of public housing units were acquired by the tenants who were living in them, taking out of the public stock, all of this affordable housing and making it uneconomic for local authorities to build new public housing because they would build it. And then after a period of time, it would be taken away from them by the tenants who are living there by rule at a significant discount to fair market value, as much as 50% below fair market value. And so starting in 1980, you had to collapse in the amount of public housing that was being constructed in the UK. And so, you know, what was the result of it? One, every year since 1980, the number of new dwellings built in the UK has under

shot the number of new households. So if you think that we have a housing shortage in the US, it ain't nothing compared to what they have in the UK. In the UK, it is a desperate shortage of housing and it's only getting worse year on year. Over the last 15 years, the number of available residences for sale has dropped 70%. It is, it really is. It is a crisis in the UK. The other issue was that these local authorities, they became, they came under serious pressure to build more affordable housing because now you had a wait list of people waiting for affordable housing and it exploded to more than 20 years today there are over 1.3 million households on the waiting list for getting affordable housing in the UK there is significant pressure on the government to build

more affordable housing so now you've got these local authorities and they've got a problem they have to regenerate all of these developments that are 40 50 60 years old you know today 70 or 80 years old, and they're under all this pressure to build more affordable housing. And just like, you know, any local government that you think of, they've got budget pressures. They don't just have the money available. And so what do they do? How do you solve it? And this is where countryside came in. And their idea was we can do what's called the partnerships model. And what that really is, is densification. They could come in and say, hey, you have a plot of land here and you've got 500 affordable units on it. Well, why don't we regenerate it? We'll,

We will bring everything up to code. We'll put in new playgrounds, new schools, new streets, and we'll build a thousand affordable units to pay for it. Are they knocking down the 500 units that were on it? Or are they leaving those 500 units and building 500 new ones? So they will knock them down, but only after building new ones. So there's no gentrification. No one gets displaced. That's why this model is, you know, in a way, it's so amazing.

But they'll go to like a parking lot and they'll build a new building in the parking lot. And then they'll move the existing tenants in the old building into the new building. So they'll have the same or more square footage, they'll have new appliances, they'll have new everything. And it's a win-win for the community because you don't displace anyone. But it all gets paid for it because, you know, you go from maybe 500 units on this, you know, few acre property. And now you build 1,000 affordable units and you do it by building, you know, 1,500 units

that you can then sell, either as rental housing or. as private for sale housing. And that densification essentially pays for the whole project. So what ends up happening is it's a win-win-win for everyone. The local authority wins. They have a regenerated piece of land with a much happier community. They do polls of these communities. And it's amazing.

Before the regeneration, most people want to leave. And afterwards, almost everybody wants to stay. So the community wins, the local authority wins. They get a regenerated community without having to put cash up. and countryside wins because they get to come in and have this project and have it work without having to put up money to buy the land because the land is on the balance sheet of their partners. And that's what allows them to have these kind of exceptional returns on capital. That was a fantastic overview. So the basics of the partnership business, as you're

saying it, the regional government or whoever it is, they own the land, they own the 500 unit plot. They just basically approved countryside to go in, build up some new buildings, maybe move the people from the old buildings into the new buildings, then demolish the old buildings, build them up. And now you've got, you know, what used to be 500 units is 1,000 units and their newer units. So it's more dense, so you can put more in it. And countryside is going to make their money because the partners keeping the land on their balance sheet. And then countryside is going to make the profits off the sales. So I guess, and this goes back to the NVR thing, right? Like one of the issues, obviously I wish I bought NBR when I first heard of it because anyone who bought NVR, you know, 28% annual return, you'd retire on that.

But one of the issues I always had was, that's a business model choice, right? NVR more than countryside. Countryside is relationships up. But doing the options on the land, that's a business model choice. And I always wondered, like, hey, why is NVR so unique, right? Why couldn't Linar go and do this or LGI homes or anyone else? Like, why couldn't they just say, hey, instead of buying it and put in our land, we're just going to do the call option model and, like, go asset like that.

I guess for countryside, my question is, what is so unique about countryside in these partnerships where the housing authority wants to work with them. Like, why couldn't you and I, and I know you've said this country, Vistri is like a $3 billion business. I know you've said before, if you and I had $3 billion, we couldn't go recreate these partnerships. Why couldn't we, right? Why couldn't we go to these people and say, hey, look, you've got this 500 units densification.

We've got the money. We're going to densify to a thousand units. And by the way, not only you keep the land on your balance sheet, we'll do all that. And not only that, we'll pay you $10 million because we think we're going to make $40 million. on this deal. So we'll pay you $10 million. We'll make $30 million. And our return on capital will be 30% and this set of Vistri's 40%. So yeah, we won't do as well as them, but you get $10 million plus a dense unification. Does that make sense? Why are they so successful in doing this? Whereas the traditional home builders are not and all that type of stuff. Yeah, I mean, it's a perfect

question. And really, I think what you're getting to is the competitive moat. And I would suggest that Vistri's competitive mode is as wide as any company that I've come across. So let's take a step back and think about that and why that is. So if you are a traditional house builder, what is your value at? It's buying the land well and working it through the planning permission process well. But neither of those things really apply to most partnership steals. The land, you don't have to buy land. It's coming from your partners. And when you have an RFP or a framework development agreement, it already includes planning permission because you're already working with the local planning boards to get it done. And so there isn't

really the same value, like the value add, the traditional volume home builders have, it doesn't apply here. Instead, you need a whole other suite of capabilities to have these projects go well. So one is, you have to be able to manage complex redevelopments, right? A lot of these have brownfield land that they're regenerating, and you need to have the technical expertise to do that. A second thing is you have to be partner led. You have to be able to work with all of these different partners and keep them not just, you know, hey, we've signed the agreement. You need to hold their hands. You need to work with them.

You need to keep them notified. And the partners include the local community. Bistri, through countryside, literally will set up newspapers on site that they will send to all the residents on a monthly basis to keep them apprised of what's going on in the project. This is entirely foreign to a traditional volume house builder. They would never set up a, you know, what community relations? They have a couple people who do that. Countryside has a whole department, right?

A newspaper? A householder would never do that. Housebuilders want. They're so focused on land, they will do everything they can to control the land. And it's an entire mentality shift to be willing to kind of give that up and say, no, we're going to be partner led. No, we're going to be focused on community relations. Our expertise is going to be in project management, in partner management, in delivering complex regenerations. It's a whole different approach, not just cultural but also technical, which makes it really hard

for the traditional volume householders to do. And then on top of it, remember the selling process. It's all about relationships. You have to have a track record. Countryside has by far the best track record in the space. They've been doing this for a generation. They've been doing this since the early 1990s and doing complex projects since the 1970s. They are the best, the number one, by far, in what are called mixed tenure region.

generations, probably by a factor of 75x bigger than anyone else. And so as a result, if you are a local authority where you really have to pay attention to whether you're going to get voted back in or not, right? You have to pay attention to the community. The last thing you want to do is end up on the front page of the unit of the newspaper for a failed project. And when you look at, yeah. Oh, I was going to say, correct me if I'm wrong, but I have the benefit of having read your Q3 letter, but you actually literally do have like multiple other large UK homebuilders have tried to do these partnerships, and you actually pulled headline quotes from newspapers of, you know, so-and-so $67 million, $67 million, I guess it is, project failed.

So, like, you actually do have examples of other home builders trying and failing at that and literally getting the local government in the newspaper for it. Yeah, I mean, we have dozens and dozens of examples. We probably have 30 or 40 examples of this, including projects where, you know, for example, there's a project right now where northeast of London with meridian water the countryside is doing. And Barrett tried to do that, and they blew up. It was a six billion pound project, and the whole thing collapsed. And that was a black eye for Barrett, which is another listed house filler.

So I'm not saying that it's impossible for the volume houseblowers to do it. You know, Barrett, Taylor Wimpy, they have a couple of these projects, but it's really opportunistic, and they have a track record of having them go bad. And that creates a substantial competitive advantage. If these projects take a long time to go through the RFP and to bid out, it can take many years before you even start building. And so if you and I tried to raise, you know, a few billion to try to do this, it would take us probably three to five years before we could even win a contract. And then we'd have to build it out and demonstrate we could do it. And now you're talking about 10 or 15 years down the line because a lot of these projects last for many years.

And we'd have one project done. You know, countryside is doing 80 of these projects. right now all at the same time. It would take us decades to catch up. Just one more quick. I mean, I do think, and you've used the term with me for it, no one got fired for hiring IBM, right? And I do think there is if you're a local government, especially you're a local government. So you're paid a government salary. You're not getting incentive fees. You know, it's not like this is a 200 million, $100 million development. But if it goes swimmingly well, you're not getting a bonus. If it goes terrible, you're fired. So I certainly think that does apply. But I guess my other question is you said,

hey, if you and I want to do this, it would take three to five years and then we'd get started. But as you said, it's not like we'd have to put up a lot of capital for it, right? So this is a relationship-driven business. I guess my other question is, hey, why isn't this similar to, you know, the head of government businesses at investment banks, right? If I'm the head of government bonds at muni bonds at city, if I hop from city to UBS, I take all my mutie bond relationships with me, and then I just call up my friend in the Iowa Muni department and say, hey, I was at city last year when you did the deal. you need a new deal. I'm at UBS. You and I are best friends. We go golfing four times a year. Like, why couldn't you and I raise $100 million? Actually, we wouldn't have to raise that much, right?

We just have to fund working capital. Why couldn't we go to countryside's best person, 50 miles outside of London and say, hey, we're doing a private equity firm. We're doing a roll-up. You come over here. We're going to give you 33% of equity. Adam and I are going to fund the working capital. Bring your relationships, the next mixed government at, you know, whatever is 50 miles outside of London. Use your relationship to get that to go to us. We'll fund it. We're going to make full. 40% ROE and we're going to compete with countryside. Like, why isn't that doable? Yeah, I mean, I guess I would say a couple things. One is, no, it's not zero.

Like, when you go through the whole bid process, you have to, you know, you have a team. They're working hand and glove with the local authority. They're going through the RFP. You're spending hundreds of thousands of pounds and maybe sometimes even more than that to just go through a bid process. And so if you're a traditional volume house builder and you want to enter this segment in any kind of organized or meaningful way, you would have to float all of the expenses of putting together the bids, which could be a lot of money with no guarantee that you're going to win

them. So there is an upfront cost to doing it if you want to do it, both in time, resources, and in treasure. In terms of your main question here, it's not a rainmaker business. It's really about all of the different functions coming together and working as teams to do it. it's one of these businesses that's not, I would say, like investment banking, where it's a single relationship. It's, hey, we as a company have all of our different teams, our technical team, our design team, our engineering team, our build team, and we all work and we all demonstrate our deep levels of expertise and competence and ability to execute, and you get the whole local authority more and more comfortable. It's not one person who makes this

decision on either side of the table. It's a collaborative effort. Perfect. Last question here. And then there's so many questions. I'm so interested in this idea. But look, you've framed this as a great business, right? And the partnership business were together. And I don't think there's anything different about the partnership business being a great business today versus five years ago when you kind of sat down with the countryside CEO 10 years ago. So I just pulled up, and this is on Bloomberg. I pulled up the Vistri chart.

Now that's Vistri, not Legacy Countryside, but Vistri also had a partnership business. You pull up the chart and it's kind of flat over the past 10 or 15 years. Like it looks very cyclical, right? housing crisis comes in 2008 straight down. Housing crisis comes in 2020 straight down. And like the stock's been bloodish for the past 15 years. And I guess my pushback is, Adam, you're framing this partnership business as non-cyclical capital light, this great business, deep-moded. There used to be, it used to be Vistri and countryside. Now it's just kind of countryside operated under Vistry, but it used to be just these two were the best ones. Now there's just one. But when I look at that chart,

I say, oh, I don't really see it. And it's not like I would say, oh, this is Microsoft in 2000. we're trading at 500 PE, and then it's kind of flat as the stock, as the business catches up to stock price. Like, it looks cyclical. So what, what is kind of switched now that, you know, in the past it wasn't really showing this, but now this great future is going to unlock? Yeah, it's a great question, Andrew. I think that this is one of those classic things where the future doesn't look anything like

the past. And, you know, almost in a similar way to how NVR was, where, you know, it had just gone bankrupt. And then that kind of by switching the model, it set up this enormous run over the last 30 years. So, Vistri previously was known as Bovis Homes. It was called Bovis Homes. I actually went to a Bovis Homes Investor Day in the Midlands in the UK back in 2008. So I have been familiar with this company for a long time. Bovis in the mid, it was a traditional house builder, no partnerships business.

In the mid-teens, they started having some real problems. They'd been operated poorly. They didn't have a great leadership team. And in the UK, it's kind of. there's a rating system for the quality of build that you have. It's done by the Home Builders Federation, the HBF. And all of the listed house builders, they all have a five star rating. It's like table stakes. You have to have a five star rating. Otherwise, your whole business is at risk. In 2016, Bovis's HBF rating fell to two stars. I mean, this was literally a

existential, you know, business risk where they could go away. favorite Thai restaurant, their health rating, it wasn't A, and it went to a C, and very similar to Bovis. My wife no longer lets me go there. It is an existential risk to their business, my life, my business. Yeah, you just can't do it. And the HBF is really methodical. They have surveys that they send to every single person who buys a home, you know, one week after, one month after, six months after. I mean, these are very comprehensive and data-driven surveys. Bovis reacted by going out and bringing Greg Fitzgerald, the current CEO out of retirement. He had been a very successful CEO at another listed builder, and they brought him out of

retirement. He came in and, you know, kind of showing how good he is. He led a turnaround of the business. And within 18 months, they were, they had jumped from a two-star builder back to a five-star building. Yep. And so that, you know, kind of shows you, you know, his competence level and how good he is as a CEO. In 2019, they bought Galliford Tri partnerships. So that is the company that Greg had actually previously been the CEO of from 2006 to 2015. He'd started the Partnerships business there. And Galliford Tri was going in a new strategic direction. It was too small. And he engineered the purchase of that business. When he bought that business, Galliford Tri Partnerships was doing something like 20 million of EBIT. He renamed it in Vistri Partnerships. Last year,

it did 100 million of EBIT. So in, you know, effectively four years, it went from 20 million to 100 million of operating profit. That's pretty phenomenal. And it grew straight through COVID. On the countryside side, countryside partnerships, when the company went public in 2015, Countryside Partnerships was doing 40 million of EBIT. When the merger happened, we estimate it was doing about 150 million of EBIT. So that was almost a 4x of operating profit over seven years. So I think that there is a really clear and demonstrated history of significant profit growth

in the partnerships businesses. But that's why the price, the stock chart of Vistri is going to look like that. It's because the current management team didn't come in until the mid-teens. And they didn't even have a partnerships business until 2019. And now you finally are going towards a pure play partnerships business, which will become the reality in 2024. The CEO, I sent it to you and obviously you know this, but the Vistri CEO, when they were doing the countryside deal,

he had a quote, he said, look, I'm no economist, but with a 2 million housing unit shortage in this country and even greater acute shortage of affordable housing. This deal has to be a no-brainer. There won't be too many opportunities to pick up the leading partnerships business that's countryside for 40% lower than the price one year ago. And that quote has just, as you can tell with my previous question, it has just stuck out to me as both, hey, yeah, this does sound like an unbelievable deal,

but also like, you know, the stock chart and if this is such a great deal, if this is such great merger, why has no one else like beating out the woodwork to come? you know, you and I both know when trophy assets come for sale, which I think Countryside Partnerships, if we're right on partnerships, it's the largest partnership business in the UK would qualify. When trophy assets come up for sale, they're only up for sale once and you generally get like strategic bidders, financial bidders, just like, tell me not the woodwork to throw huge premium out there. And I just, I see that quote. I'm like, yes, and I'm worried about it if that makes sense. Yeah. I mean, again, the, the management team at Countryside

after the CEO who left to take care of his wife, it was not a great. CEO and he tried to centralize what is a naturally decentralized business. And so, yeah, there were some worries about whether, you know, there was something wrong with the business because he mismanaged it. But the reality is that it's a great business and under proper care and love. I mean, even under him, it grew in operating profit. For 2019 until 2022, operating profits grew by 25% of countryside partnerships. So it just shows how great a business is that even under someone who mismanaged it a little bit, it was still. able to grow. Now, under the Vistri team, which is the best in the sector, again, not just

Greg, but Greg has a great ability to attract talent to the firm. So the bench here at Vistri is really deep. It's the head of partnerships is a guy named Steven Teagle. He's the best in the partnerships world. He's just, it's a terrific team around him. I think that that is going to be as much as anything, the main driver here is that not only do you have a great business, but you have a great management team leading it. Silly question. When Countryside does one of partnerships. Is it you do the partnership, you sell the units that you're allowed to sell over five years and then you're kind of, not that you're done with them because you'll maintain the relationship if they need more densification. Or is it kind of similar to, you know, like the

HHC, yes, the HAC, which is a master plan community. Yes, they sell the homes and they get benefits from the home, but they also maintain like a lot of properties and income producing properties around so they have ongoing management fees. Like, is countryside also managing these units and getting ongoing profits for that? Or is it really just you do the partnership and then you move on to the next one and maybe 20 years from now, your relationships kick up and you go redensify it again. Yeah, it's the latter. There's no management afterwards or anything like that. Now, a lot of these projects, though, I mean, and I think that this is important to talk about, it's called mixed tenure. And what mixed tenure means is, you know, a traditional volume housebuilder

is selling all private for sale, a traditional partnerships project. And of course, it can be, it can vary depending on this, you know, it can be tailored to the specific piece of land and the specific partners. But they're generally a third, a third, a third, one third private for sale, one third affordable, and one third what are called PRS, which is private rented sector housing. And there's a shortage of rental properties in the UK as well. And so that's something that's actually supported by the government. There's incentives to build PRS. And what that means is generally, before the project even starts, two thirds of the project is already pre-sold, because they'll sell all the PRS to large institutional investors that are trying to own PRS,

including Blackstone, which just announced a huge 819 million pound agreement with them. But then the affordable housing is to go to local authorities or to what are called housing associations, which are not for profits that own affordable housing in the UK. And so in general, you can think of these projects as being at least 65% forward sold. And honestly, because they pre-sell by six or nine months on the private for sale, a lot of these projects are pre-sold 70 or even 80% of the way. So you've got a lot of visibility on these projects. And that allows you to build straight through even when there's cyclical ups and downs in the market.

You're just not, you know, if you have to sell 200 units that are all private for sale into the market, but if a third of them are each of those tenures, and so you only have to sell 67 private-for-sale units, it's just much less, much less in a specific footprint. You just don't have the same saturation. It becomes much easier to sell those units. And so they're really advantaged in all of that. At the same time, because they have the visibility on all of those pre-sales, they can negotiate a lower price with their subcontractors, with their vendors.

One of the issues with the volume house builder is that they match their build programs to their sell programs. So as you are selling, if you're selling two a week, you're going to build, two a week. If you're only selling one a week, you reduce the amount of building that you're doing and you only build one a week. And that means that the subcontractors are not, they don't have much visibility. They know that they could be dropped at the drop of a hat and they are going to need to backfill in that work with someone else, probably at a much lower rate or they're going to go a period of time at no work. Countryside goes to them and says, hey, Will will give you visibility to build out this entire project, give us a 10% discount. And that's a no-brainer for those

subcontractors. It's a no-brainer. And so when you go to these local authorities, not only is countryside the one with the best track record, the best reputation, the best skill set, all of it, they're also working at 12% operating margins versus a traditional housebuilder at 20% and doing those 12% operating margins with vendors who are subcontractors that are charge, you know, that are charging 10% less because they have a lot of visibility on their build programs. It ends up being a win, win for everyone, including the local authorities. You just couldn't get this pricing if you're a local authority from anyone else. I kind of thought it was funny where I, when I tweeted out, hey, are there questions or when I, I don't read a lot of

Southside. We'll talk Southside later. But, you know, I saw a lot of questions on this 10% and you and I are very familiar with fiber building in the U.S. And one of the issues, a lot of people ran into fiber builds was when you rant from one home today to 5,000 homes tomorrow to 2,500 homes the next day, and you've got no visibility, you try and jam it all through that pipe in one shot, like the contractors, you're like, whatever. But, you know, if you can say, hey, we're going to do 10 homes every month for the next 20 months, you can plan that out with your suppliers and, like, the supply chain costs are much lower. I was very surprised that people were like, hey, if countryside can come and promise a thousand

homes per month for the next 12 months, is that going to be cheaper than, you know, another homebuilder going and saying, hey, we'd like 1,000 homes next month, and then we might either do 0,500 or 5,000 the month after that. I was surprised people were questioning if they could get a little bit of, like, stability pricing, because you do. If your people can plan out their supply chain, like, it totally makes sense. And yeah, so I love that. One more question on the partnership side.

And then I'm going to go to, I know there's lots of questions on the cycle side and everything, but just on the partnership side. So Vistri is they're exiting the traditional home building segment, right? And I think the way they're exiting is they're just kind of kind of wind it down, running for cash, try to flip parts, plots over to partnerships. Don't think that part is hugely important. But I do have a question like, when I look at Medicare businesses, right, Medicare business are very public.

And every now and then you'll see a Medicare DME business and they'll come out and say, hey, we've cut a lot of costs. We've had a little bit of pricing growth. Everything's going great. Our margins have gone to 8 to 14%. And guess what happens? Medicare sees those public statements that say, okay, great, 7% price job, your margins are 5%.

And I do wonder if partnerships, like it was smaller, was buried within home building. you could say, oh, you know, we're not fully loading with GNA. Now that it's going to be a pure play partnership business, do you think the partners are going to look and say, oh, well, you guys are getting 12% margins, that's fine. But, you know, 40% return on equity. Why don't we just drop our, why don't we just cut the pricing or, like, have you pay us a little bit of bonus and take your returns of equity from 40 to 25%. Like, do you worry partner pushback as they kind of see how good the partnership business model is? I don't think so. And I think it's because the market is already very efficient.

So if you look at, like, there are some builders in the UK that would be called more contracting businesses. So take something like a level, which is a subsidiary of Morgan Sindle, which is a public company, or a United House, or I guess they're now called United Group. They're going to run with pretty thin margins, you know, four or five percent operating margins because they're just doing contracting. Think of it as like the Foxcon model where it's all about, you know, building on time and building at the lowest cost. if you add in the value ad bits, the design, the marketing, the, you know, relationship management, all of the things where maybe you're more like Apple, not saying that Fistry is Apple, but you can see, you know, Apple is doing the design. They're doing the marketing. They're doing the brand, all of those things. You get paid for that value add. And so that's why, you know, countryside would earn something like a 12% operating margin because they're doing the design. They're overseeing the construction. They're taking on all the project risk. They're bringing significant expertise and project management and partner management. They're creating, you know, structuring the deals. And so, yeah, they, that's where it kind of maps out. Now, if you then commit a bunch of your own capital and buy a bunch of land, a traditional volume house builder earns a 20% operating

margin. They just do it with a lot more cyclical risk because now they've got all this land on their balance sheets and a much lower return on invest in capital. And so, you know, for countryside, they've made the decision that they want to do it that way. If you're sitting in the seats of the local authority or the housing association, you look at countryside and you say, hey, this is the best deal ever. Because not only do I get the guy who, you know, gives me confidence that this is going to be executed really well, not only do I know that the pricing is going to be really attractive because instead of taking 20% margins, they're taking 12% and they're giving me even better pricing because I know that their subs are giving them a deal on top of it. So I mean,

you just couldn't do this yourself anywhere close to the same to the same cost. There's another benefit to local authorities, which is when you go through, so probably the most famous project or regeneration project that countryside has is called Acton Gardens. And it's in the northern part of London in Zone 3. And it was, you know, literally the projects. And they've totally rehabilitated it. It's, you know, thousands of homes. It's hugely successful. You know, one of these classic ones where, you know, most people wanted to leave and now 95% want to stay, right? It's just, it's a classic, it's a classic kind of countryside development. The local authority has not only benefited from having, you know, happy citizens and lower crime and all of those things.

The value of the land after regeneration has more than doubled. And that's hundreds of millions of pounds of value that accrues entirely to the local authority. They can borrow against that. That's a higher tax base for them. it is huge, huge value for them. And so at the end of the day, not only does the local authority not pay any money out of pocket, they actually get much greater financial wherewithal because the value of their own assets has this huge uplift.

It is a huge win-win for the local authority. So you can see what the choices that they face. If we know that we're going to add 500 million pounds of economic value by having a successful regeneration, why take any risk on the regeneration? Go pay an extra couple million pounds and get the best guy who's going to do. deliver it on time, on budget, and have it be a really successful outcome without pissing off any citizens or residents. You could make a couple comparisons, but one, like the NPC comparison makes sense. Or to me, the other is, look, there's all these billionaires who are buying

sports teams now. And they're buying sports teams because they're great assets. I think that owning a sports team is probably the most fun thing you could do as billionaire. But they're also buying sports teams to say, look, I'll go build a stadium. And I'll use this as the centerpiece of a mixed-use development, you know, the stadium's in the center, all the land around it. I buy all that land really cheap. I built all these restaurants. I create all this value. And like, yeah, maybe I overpay a little for the sports scene, but I'm going to have a lot of fun.

But also, like, these guys are making billions off real estate developments. And to me, it's like, hey, you turn this, I don't use the term lightly, but some of these can be like blight. So you turn this rundown blight that's a terrible. You spruce it up. It, you know, yes, countryside makes a partnership, but you've got all this land around it that's now worth so much more because people aren't. actively trying to stay away from it. You've got the redevelopment, as you mentioned. There's the

tax rules pieces of it. It makes tons of sense to me. And it resolves, and it resolves, you know, the pressure on local authorities to build more affordable housing, to add more housing stock in general. I mean, it's just, there's a reason why this is in so much demand. And it's, there's a reason why countryside isn't so much demand. And look, maybe, I'm sorry, maybe I'll just, there's a segue to another thing that we talked about before, which is, you know, I think that there's been a number of questions, including on, on your Twitter about, you know, kind of the growth opportunity. You know, can they get to 20,000 plus homes delivered a year? You know, is this, yeah, I think one of the folks on Twitter asked a question around, you know, GDP is pretty low growth

in the UK. So, you know, what does that mean in terms of the opportunity here? And so maybe this is worth framing a little bit. Right now, countryside is working with about 35 local authorities. There are 371 in the UK. Right now, countryside is delivering, you know, in the teens, thousands of partnerships units a year, there's 1.3 million households on the waiting list just for affordable homes. PRS investment, according to some industry data sources, is supposed to more than double over the next five years. The amount of demand for what they're doing is extraordinary. It's simply extraordinary. And they are the best place to meet it. They are the best at doing this. They're the best place to meet it. I don't think that the constraint

for countryside is going to be amounts of demand. And I also don't think it's going to be the amount of supply because there's so many projects that need to get redone. There's so many, you know, millions of council estate units that need updating. I think that ultimately the reason why this company will probably only grow, you know, 10% a year or something like that is just that they need to make sure that they hire the right people. It's all about people. They need to train them up in the approach that countryside industry takes, focusing on return on capital, focusing on doing right by your partners, focusing on structuring really thoughtful and well-designed partnership agreements, you need the right people. And house builders, the mentality is different.

House builders are so focused on operating margin, so focused on land, they're not thinking about return on capital. They're not thinking about partners. And so you really have to train it up internally. That's the constraint on Vistri's growth, on the partnership's business's growth more than anything. And so when you look at, you know, some of the, yeah, maybe I'll pause there and I'll let you. No, I'm laughing a little bit just because we're an hour in and we're less than a third of the way through my notes and pledges. But let me just ask you, so you started on growth and we'll go to growth and I really need set cycle, but I do want to, we've painted this really interesting thesis, right?

As you said, this is one of the modiest businesses you've seen and I'm starting to get there too. But let me ask the, what breaks the thesis in your, right? If you and I are sitting here five years from now, and I understand this is a high conviction position, you've spent literally years on it, you've shaped the company to the point. where you want it to be, or you've helped shape, obviously others have been involved, but you've helped shape the company to the point where if you and I are sitting here five years from now and we're talking about Vistri didn't work, what broke the thesis?

Yeah, I mean, one opportunity, of course, is if the UK housing market goes into a really severe recession. This is a business that partnerships at countryside grew through the GFC in 2008. Partnerships at Vistri grew through COVID. So this is, and in 2023, last year, Most UK House Builders saw their operating profit down 30 to 40% and it looks like the partnerships business for Vistri will be up in the single digits percent in terms of operating profit. So you can see how resilient it is. You can see how kind of a cyclical it is.

This goes to this cycle, but like, why does it? Because a lot of it is, this is high demand. They're getting the land basically gifted to them. They're pre-selling a lot of it, right? Like, why does, I guess if you went into the Great Depression, Yeah, you can't sell anything. But like, why would it dip into housing cycle or a serious dip even? Why would that break the thesis?

Right? Yeah, it's not going to go up 20x in the next three years if you've got a huge. But why does that break the thesis? Yeah, I mean, I think you were saying if we look back three years or five years from now, why would the stock not be up? You know, you could go, of course, if there's a UK housing depression, something like that happens, that would be bad. You could have an execution issue.

If all of a sudden, the HBF rating fell back two stars, that would be a real problem. I think there's an election this year in the UK, and so there's some, you know, nervousness around that. I would say that both of the parties are very pro-housing. It's a winning issue to be pro-housing. And in fact, I think that a lot of the CEOs in the UK house-building space will probably vote for labor this time, which is kind of, you know, not the normal. Yeah. Yeah, labor is definitely the favorite. Conservatives have overseen the UK for, you know, over a decade at this point.

But labor has come out very full-throated. They've moved to the center under Kirstarmer, and they've come out very full-throated that they want to increase the amount of building of homes in the UK and make the planning permission process easier and build more affordable housing. Those are things that really play into the sweet spot of history. And so what I think would be positive. But of course, you know, anytime you have changed, that could lead to worries. But I think it would really be down to that.

It would be, is there some fundamental change? in the way the UK housing market works, is there some, you know, depression that happens to the UK housing, or is there an execution issue? You mentioned execution issue? So because they're pre-selling two-thirds of it, I mean, they aren't really paying for the land, but how much cost-over-run risk do they have? And I understand, you know, they're doing lots of projects at once, so cost over-run on one wouldn't be a disaster.

But I'm just familiar with the sphere, which was supposed to cost $1.3 billion and ended up costing over $2 billion. Like, what if they had five projects could cost overrun? Is that okay? like they're kind of getting, I guess they don't get passed through, but they'd be able to pass it through eventually, or would they face serious risk there? Yeah, I mean, they back to back it. So they pre-sell and then they lock in their rates with their subcontractors based on their sell price. And the subcontractors are required to meet a cost and a delivery date. And so if there's a cost overrun, it falls on the shoulders of their subs, not on their own shoulders. The other thing that Countryside does is generally their projects are done using what's called phasing. And so, take something like acting gardens, you're on probably phase 30 or phase 40 at this point where they, you know, every nine months, they're going to reset, okay, for the next nine months,

we're going to build these 75 homes and this is what the economics are going to look like and then we're going to lock in our subs. And so it's hard for there to be a material cost overrun between how they kind of back to back their sales with their subcontractor pricing and because they use project phasing. In addition to all of that, there is no one, five or ten projects that are make or break for this company. You know, they're building, you know, 70 or 80 projects right now and all across the UK and that number is going up over time. And so there's just, there's not that concentration risk of, you know, one or multiple projects really impairing this business. No, I guess it was interesting asking because, A, you have, I have seen that in partners, not this business, but businesses

that rely on like this before, but B, you know, we just went through a sustained ballot of inflation and you could imagine, hey, if they're pre-selling everything and prices went up 20% all of a sudden they're underwater on all their projects at once, even though they're doing 20 projects. But it sounds like they do a nice job of blocking their... We touched on it a little bit, but everyone's going to want to know. UK housing cycle, where are we? How much is this bed on the UK housing cycle?

Where are we again? Anything we haven't touched on the UK housing cycle you wanted to mention? Yeah, I mean, I think it's... I think I'm well positioned to talk about it because I've lived through a housing down cycle in the UK back in 2007 and 2000. thousand aid. And at that time, I was working at a firm called Sheffield Asset Management here in Chicago. They had about a half billion in assets under management. And I was tasked to go look

at the UK housing market. And we ended up going short, a handful of UK mortgage lenders. Three of the four that we went short ended up going bust. And, you know, I don't know if you remember this, but there was a mortgage lender called Northern Rock, where there was literally a line. There was a run on the bank with physical people queuing in line to withdraw their money. It was something like out of the 1930s that you wouldn't expect to see in the 2000s, but there it was. There was one mortgage lender that we went short called Bradford and Bingley. And I remember going with my boss Craig, and we took a train up to Bingley, which is in the north of England, and we got into a cab to drive over to the headquarters.

And as we're in the cab, I mean, this is like an out-of-body experience, almost like I felt like I was in a Michael Lewis novel. The cab driver starts telling us about this portfolio of buy-to-let properties where you buy them and then you rent them out, that he had built with no money down, interest only, using the rising value of one property to finance the next property. And he built a portfolio of three dozen properties. This is our cab driver. All 100% LTV, like, the real question is three dozen.

What is he doing spending any time as a cab driver? Like, that is a lot of potential income. He's managing those bad boys. It was wild. It was crazy. And he spent the entire cab ride telling him. us all about it. We get to the meeting and the CEO of Brad Fremingly, he sits down with us and he says, Craig, Adam, I have great news. New regulations in Europe under Basel 2. And what they say is I only need

to hold half as much capital against my loans is what I had to hold before. So in other words, he was, I'm sorry, he was a third less. And so he was able to lever up by an extra 50%. And Craig and I are looking at each other like, oh my gosh, this business is gone. They're going bust. And it was great news for short sellers. Over 40% of their loans were by to let. And so we were like, it's over. They're not going to make it. And lo and behold, you know, Bradford and Bingley was one of the first to go. The CEO resigned, all of those things. Bradford and Bingley doesn't exist anymore. And so when you look at it and you think about it, you know, in 2008, when there was a substantial decline in home prices, well, what was the setup? You had mortgage lenders who were really undercapitalized.

You had loans that were frequently at, you know, 100% loan to value. You had. You had, had interest-only loans. You had huge numbers of buy-to-let. You had all kinds of issues where if there was a doubt, and by the way, the house builders were levered. They didn't have net cash. They had a lot of net debt. And so if you had any kind of downturn, well, all those buy-to-let properties, they would have to be sold. And the house builders, they'd have to get out and sell just to raise cash. Today, it couldn't be more different. The UK mortgage lenders are overcapitalized across the board. You can't get 100% LTV loan. You can't get a 90%. Most of the buy to let loans, which are now a small proportion, are done at a 50% LTV. The average LTV across the UK

mortgage sector is 45% right now. And at the same time, mortgage rates, because rates in general across the global developed world have fallen, you can now get a five-year fixed rate for under 4% in the UK. And so to me, when I look at, and by the way, all the UK house builders, they have net cash on their balance sheets, not net debt, just like this tree. And so when you look at it, it just doesn't look the same as 2008. You've got really well-capitalized house builders, really well-capitalized mortgage lenders, prudent lending that has happened, and low mortgage rates that are still there, I just don't see it. And so, you know, house prices, even with interest rates going up, house prices are down just 1% year on year. I actually think that there's going to be

a really strong spring selling season in the UK housing market. And honestly, I think the whole UK housing market is attractive right now. You can almost look across the house builders and say they're all trading for below book value. They're all really interesting right now. But Vistri is the one that really sets itself apart because it has this partnership's model and because as you go through this transformation, I think the risk reward on it is just extraordinary. Maybe it's worth it to just quickly talk about the stock because that's my next thing. Let me just add one thing. You and I have not discussed this. We've talked to, I believe you and I talked about IWG together years ago. kind of just on your UK houses are I think like the UK market might be the most interesting

market in the world right now just because everything is so shout out there and you know history IW whatever you want to look at like I just think it's a really interesting pond to be fishing and it's where I've tried to spend more of my time though it's hard like I do have a domestic focus let's talk so the stock as you and I are talking let's round it to 900 900 pence is that is that the units yeah 900 plans so it's nine pounds or 900 pence the medium term targets and they publish their medium term targets too they talk about it people can go read their H1 23 semi-annual Carl where they publish your targets. Let's just use their medium term targets.

We're going to hit a 40% return on invested capital, 5% to 8% revenue growth, operating margin of greater than 12%. That leads us to greater than $800 million in operating profit. Over the next couple of years, that lets us eliminate all of our net debt and return $1 billion of capital to our shareholders. And they've already started that return. They're doing it. They kicked up their buybacks.

You can see one of the great things about UK stock market, They have to file their buyback every day. It's one of the great and downsides because if you follow them, your inbox just gets flooded with buyback notifications. But so if they hit those targets, you know, we're talking the stock is at nine pounds right now. Like, you know, in the medium term, what do you think we're, you're kind of playing for in your base case if we're hitting those targets? Yeah.

Look, I get the notifications every day. Sign up for the Vistri distribution list. Well, you know, they bought back 80,000 shares yesterday. And I think they're going to be buying $100,000 a day for as far as the I can see. Some days you might get buyback notifications, and some days they might tell you to go F yourself. You never know. Yeah, I guess that's fair. For those who don't know, their provider got hacked, not them.

Their provider, as the provider for several others, and they sent a note that said, go F yourself. And this was them and shareholder companies. But I got it. And I said Adam and Ebo, that was like, they really don't want me as a shareholder. And what's great is Tesco was one of the companies that it applied to. So every Tesco, everyone who was on Tesco's distribution list got that Elon Musk meme. Yeah, I mean, so when you look at partnerships businesses, there have been two transactions in the last half a dozen years.

One is a company called KeepMote, which is privately held. It's a P.E-owned business. And the other is Galliford Tri Partnerships, which was purchased by Vistri. Both of those were purchased for essentially the same multiple between 12 and 13 times EBIT, 12 and 13 times operating profit. Vistri, through countryside partnerships. I mean, when you think about countryside, countryside. Countryside. Countryside is growing faster than those businesses. Keep Mode is actually a no-growth

business. So countryside is growing faster. It earns higher returns on capital than those businesses, and it has much more scale as the dominant, clear number one in mixed-tenure partnerships regenerations. So more scale, high returns in capital, growing faster. I don't see why it shouldn't command a premium multiple. I don't know whether that's 15 times, 17 times, 20 times, But something in that ballpark of an EBIT multiple makes a lot of sense. If you look at the company right now, they're going to do over 500 million of operating profit this year, and it has a 3 billion pound market cap, and they're going to return over a billion pounds of excess capital that is freed up from exiting house building.

So you're talking about a business with a 2 billion pound enterprise value that's going to do, I don't know, well in excess of 500 million. You're talking about three and a half times EBIT is the current multiple. So transactions at 12 or 13 times, this should go per premium to those, and this is three and a half times even. If you use 800 million of operating profit, which is what their target is, it's at two and a half times even. So you can see how this business should be worth not just a little bit more, but many multiples more over time as it proves it out. And I think part of the reason here, and this is, you know, comes back to our investment thesis and our philosophy. We look for companies that are value plus a catalyst.

in this case, I think the value is clear. Well, what's the catalyst? In the U.S., investors tend to anticipate the future by months or quarters in advance. That's not how it's done in Europe. It's a, I need to see it to believe it kind of thing. And even some of the sell side analysts, they're still skeptical. They've seen how well partnerships has done over time, but they've never seen it as a pure play partnership business in the public markets. And so they're all saying, hey, this sounds phenomenal, but I need to see it to believe it. And so I think that as investors today, when you look at the opportunity, you have an opportunity to invest at a time when the market is not giving credit for what a wonderful, high quality, high growth, high return on capital partnerships business

looks like in the UK public markets. This should trade for 15 or 20 times EBIT and you get to buy it for two and a half times EBIT on its 800 million operating profit target or three and a half times EBIT on current operating profit. I think there's one other comment to make here about UK investors, which is when you look at most UK buyside investors, you can kind of put them, you can bifurcate them into two different camps. There are UK investors who love dividends and there are UK investors who love high return on capital businesses. And when you look at capital flows, it's going away from the dividend investors who have kind of underperformed overtime. And it's going towards the guys who are, have outperformed over time because they own

high quality businesses. There's probably the most famous fundamental investor in the UK is a guy named Terry Smith. He runs a fund called Fund Smith. And some people style him the Warren Buffett of the UK. I don't know whether that's true or not, but he is a great track record. And he buys really high return on capital businesses. As a result, in the UK, high return on capital businesses trade at big multiples. They trade at 30 or 40 times earnings. I don't see a reason why once this is pure play And once they've finished the conversion to a partnership business and are demonstrating those high returns and capital, I think that those guys are going to sit up and take notice. I think there's a lot of capital that is going to want to own this company once the transition to being a pure play partnerships business and a high Roki business, a high retry capital business completes, which should be done by the back half of 2024. Let me give one piece of pushback.

And I think people take this in good faith, because as anyone who can listen to this, the product, I said, I did so much work on it because I'm absolutely. fascinated by this. I think this is great idea. The one piece of pushback I would give if you made on that picture is you said 12 to 15 times EBIT is precedent multiples, right? And that is, 12 or 13. But yeah. After taxes, let's call it 16 to 18 times free cash flow to equity. So, you know, you're a little bit of 6% of cash flow to equity yield. And I guess my my one pushback is I can hear that. But the prior deal multiples that we're talking about have been small, right? So there's lots of room for growth. And when I look at these guys, I mean, we talked about a little bit earlier, but this year they deliver 17 to 18,000 homes. I think their target is for like

kind of 22,000 homes. And the UK, if I'm right, I think there's 200,000 homes getting delivered this year, right? So they're already over 10% of the market. Now, the market needs to grow, right? It's underserved. We've talked about all that. But I guess the one pushback I'd be saying is, hey, you know, I don't think you can pay five to six percent free cash flow yield without a decent bit of growth coming in. And I don't disagree with you nicely moat, good returns, great returns on capital even. But I guess my push would be, how much more of the market can they take than kind of like 10 to 15%? Right? I worry that they hit a growth wall. And that's an argument for, my argument is for a 8 to 10 multiple instead of a 12 to 15 multiple. But I do think that is

a fair argument and fair pushback. So what do you think about that? Yeah, I mean, obviously I'm going to take a little bit of a different perspective, a different view on it. So, you know, look, labor has come out and said that they want to be building 300,000 a year. And when you look at where the incremental build is going to come from, a huge percentage of it is going to be affordable PRS done with global authorities. Why couldn't countryside be building 50,000 a year, 70,000 a year? I mean, I'm not saying that that's going to happen in the next five or 10 years, but if the UK starts building 300,000 a year, it's going to be not through the private for sale traditional volume house builders. It's going to be coming through a company like countryside. They're going to capture the lion's

share of the incremental. The second thing I would say is, um, You have to think about their business model in a way as kind of the crux of their business model is asset turns. It's all about asset turns. Because a traditional volume house builder, you know, has to build as they sell, they build much slower, whereas countryside builds much quicker because they don't start and stop. They just build straight through without having to pause or modulate their build programs. So as a result, like we've looked at projects where a traditional volume house builder,

came in and bid on it saying that we'll build it in eight years and then it was done in two and a half years by countryside same number of homes but they're able to do it you know two or three times faster because they have that visibility they can do it across you know multiple 10 years they build and deliver much quicker so the same amount of capital employed should lead to more units built this year again maybe 17,000 deliveries their targets 22,000 I don't think that that's a big stretch as they convert projects and capital investment from house building to partnerships, I think that's eminently achievable. And in fact, countryside has a slide that they've put out that they say that the capacity

of each of their business operating units is 900 units a year. Following the exit of house building, they're going to be at 32 operating units. And so if you do the math on that, 32 operating units times 900 a year, their capacity right now is 29,000. Not to say that they're going to do it, but that's what their, but that's what their capacity is. My next question was going to be, you mentioned, I'm sorry. Yeah, if I could just say one other thing. The other thing is, you know, you talked about units, right? Hey, they're this percentage market share of units. But if you look at value, because again, they're building affordable homes. They're building, you know, first time buyer kind of more entry level homes. If you look at

it by value, the amount that countryside is, is building relative to the total market. size is much, much less than that. It's like two or three percent of the value of building in the UK, even though it's a higher number in terms of units. And now a quick break to remind you that this episode is brought to you exclusively by AlphaSense, the AI platform behind the world's biggest investment decisions. AlphaSense gives you the tools you need to provide better analysis for you and your clients. As yet another value podcast listener, visit Alpha-dashcense.com slash FS today to beat FOMO and move faster than the market. That's alpha dash sense.com slash FS.

No, that was great. And I'm glad you mentioned the capacity of their internal units because one of my question is going to be, hey, you mentioned it's really hard to train somebody to do the countryside partnership model. Like in the same way Exxon used to say our limitation is Exxon style engineers, not the oil we can drill. But it sounds like maybe 50K, they're going to have, they might have troubles going to up to 50K, but they've got capacities to get up to about 30K, which is a long, long runway for

great. All right, last question, then I'll let you go because we're running super long. You know, I don't read a ton of cell side. I don't know how much you read a ton of cell side, but one of the things I did do when I was getting ready for this is I, there are a lot of selling questions on this. And, you know, this is something that you and a lot of our mutual friends think is a three bagger, a five bagger over a really attractive medium term target, right? like, we're talking great R.I. So I was ordered, what is the cell side looking? What is the cell side missing? And I was just a little surprised. Like, I looked at, uh, I saw, I only had access to J.P. Morgan and Jeffreys, J.P. Morgan has a cell rating on this. And Jeffries, like,

in October, right when I actually think the model really started proving out and they were like, really starting to show the operating momentum, Jeffries downgraded them from buy to hold. And again, I don't care about individual cell sides or what, but what do you think just on the whole the cell side is missing that they've got, you know, a sell, a buy to a hold instead of Everyone out here being like, hey, this is at 900 and it should be, you know, 2,000 on the low end or something. Yeah, I mean, when you look at the cell side ratings, there's six buys, there's five neutrals, and there's three cells. So there's a good spread. Peel hunt is probably the biggest bull on it. I guess maybe UBS is the biggest bear. I'm not sure. The Jeffrey's downgrade came at the same time as the UBS downgrade, and they had the same argument, which is that they were worried about execution.

they said, look, no, the most homes delivered in a year in the UK is 18,000. And they said, you know, for this to work, you need over 20,000 delivered. And so they said, I need to see it to believe it, right? This is what, this is what everybody says. I need to see it, it's UK, it's Europe. I need to see it to believe it. Our argument is, or our suggestion is, you know, this isn't a traditional volume house builder. This is a partnership's business. It can build a two to three X the acid turns of a traditional. volume house builder. And so if you're going to compare it apples to apples, you know, building 18,000 a year is like building, you know, 54,000 partnerships a year in a way. Now, that's a little bit ridiculous and not entirely on point, but I guess the point is there's no magic number about the 20,000 figure. In fact, D.R. Horton here in the U.S. builds 85,000 homes a year. There's nothing magical about the 20,000 number that should make that impossible. And in fact, the infrastructure that that countryside has in place, as I mentioned, can do up to $29,000. Ultimately, what I think will happen here is every day this company is buying back shares, every day this company is

demonstrating that it is becoming more and more partnerships. The rokeys are going to go higher. The returns of capital are going to go higher towards that 40% target. And as they demonstrate that they can deliver at scale like they have in the past, but not as a pure play, I think that the sell side is going to have no choice because the stock's going to start to go, and they're going to be late to the party, but they're going to have to flip to buy ratings on it because this is the winner. This is, this is the one to own in the UK housing sector. You said need to see it to believe it. And I guess my question on that would be, do you need to see it to believe it? Because look, I get, if they do 22,000 homes at these

margin, this target, it's going to be better than if they're doing 17,000 homes, right? But this year, they're going to do 17,000 homes and deliver 500 million adjusted EBIT. And I think if they just stayed at 17,000, it would be hired next year because they'd be getting a little bit of operating leverage as all the synergies flowed through. So I guess my question is like, couldn't the stock work if they just froze at 17,000? Yeah, it's not going to work in the 28% compound forever, but it's actually going to work pretty nicely. Like if I'm doing the math in my head, I think that would still imply 40 to 50% upside in the stock if I'm kind of doing the rough math in my head right at 17,000 and maybe like, you know, 600 million in EBIT instead of over 800 in these

capital return stories. Am I thinking about that right or am I missing something? Yeah, I mean, one of the things about NVR is NPR only grew at three or four percent on the top line over the last 30 years. So you don't, you know, this model is not predicated on having a huge amount of growth in it. The fact that it does have a real amount of growth shows just how, you know, much more potential, I think, is in, is in mystery. There are some real things coming through. So this year, so if you look back at 2023, the operating profit is going to be just shy of 500 million. there's another 60 million of synergies that are coming through from the countryside transaction and then from exiting house building.

And so that should put you, you know, well into the 500s. If you get, you know, 8% growth a year over the next few years and then you cycle off some of the low Roki projects that were under the countryside umbrella under the prior CEO and replace them with higher Roki projects, I don't see any reason why you shouldn't be doing 40% plus. In fact, probably 45% plus returns on capital here. That's what Vistri Partnerships was doing pre-merger. It was doing 45% returns on capital. And so they've done it before. This is not recreating the wheel. They've done this before. And now they're bringing the same discipline and operating philosophy to the entire, you know, combined business. I think it's eminently reasonable

to achieve a 40 to 45% return on capital. Post, you know, once everything is cleaned up and everything is done, the business will have about 2 billion pounds of invest in capital. And so if you believe the 40% Roki target, which again, for a lot of 2015, 16, 17, 18, and 19, Countryside Partnerships was doing over a 70% return on capital. So this isn't like something that has never been done before. Countryside has done it for many years. And Vistri did it immediately pre the merger. Absolutely. I think that you can see a path to 800, 900 million. You've got the synergies. You've got growth, you've got better operators, and you've got the share buyback program, which every single day is reducing the share count. So you put it all together, and I think it's pretty

compelling. We talk capital allocation. Talk CEO. C is pretty incentivized. I mean, I think he owns like 10 million pounds of stock, and I think he gets a pretty incentive every comp package, which is exactly what you want in a business with growth targeted and upside like this. Yeah. So if you look at his comp package, I mean, it's a three billion pound business. His salary is 800,000 and he gets a bonus up to six times his salary. So another 4.8 million. Of that six times, five out of the six times would come in shares. And he already owns over 10 million pounds of personal investment, all shares that he's bought in the company. So, you know, is he going to get paid? He's going to get paid if the company does really well and shareholders do really well.

He's really a lot and he's going to get incentives. I'm just, I'm sad for him because, you know, three billion pound business he gets a salary of 600,000. I mean, there are some US companies where the directors might get $600,000. I know. Those four UKC, they don't know how good they could have it over here. Yeah, it's wild. Look, we hit basically all my questions I'm going to say. Any last thoughts before we wrap up? We've been going for 90 minutes. So this is a marathon podcast. But any last thoughts before we wrap it up? Yeah. I mean, I think that there's one thing that we haven't talked about that I do think is important. And that's something that happened. in May of this year. So on May 11th, I guess of last year, 2023, on May 11th,

2023, Vistri announced that it was adding two directors to its board. Oh, great point. One of one of the directors that they added is a guy named Paul Wetzel. And Paul, he is a seasoned American CEO. And he formerly was the CEO of Lowe's hotels. He currently sits on the board of multiple Fortune 500 companies that are publicly traded, including Hilton Grand Vacations, and he's very well respected. He also spent over a decade on the board of directors of NVR. And I think that the link between Vistri and NVR is not just theoretical. It's not just based on, you know, the framework. Obviously, the specifics of the business is a little bit different. Partnerships is not the same as, you know, buying options as it is in the U.S.

but the framework, the high-level framework of a asset light house builder that's really well managed and is deploying excess capital and the share buybacks, that's a formula that works. And that connection is not just theoretical, it's tangible. It's direct. We have an NVR director on the board of Vistri. They know the game plan. They know how to generate really strong returns in capital and they're running the playbook. It's a direct linkage and I think it's really powerful.

Let me use that to ask just one interesting question that comes up. Like, okay, 40% of the legacy countryside ownership that, you know, was responsible, was partly responsible for the merger that pushed this through and stuff. They're all American-based funds, right? You guys, all the other funds we mentioned earlier, the NVR exec who's on the board here now. He's mainly an American exec. And I think that might be unfair because Lowe's Hotel is an international chain, HGV has some international business, like, but he's an American exec.

And I did have some people say, like, hey, this is, and you and I both have a lot of similar plans who are in the stock. And I've had some people say, hey, this is a really popular idea among American funds who are running the NVR, like, model in their head and seeing this. And that's great. But why aren't you seeing like UK funds who are familiar with like all the grounds? Like, they live in these things. They see the building. Why aren't you seeing UK funds go crazy for this? Like, why isn't this the biggest holding of every UK focus value investor or something? And I don't, I've got feelings on that. I don't think it's a deal breaker one way or the other. I actually think like many funds have had a lot.

lot of success, seeing something that worked in the U.S. and then going and buying its equivalent internationally. But it is an interesting thought. So maybe we could wrap up with that thought if that makes sense. Yeah, I mean, I guess my answer is that there's a lot of UK funds who do see it. I'm friendly with a number of, in fact, I would say many shareholders of this street who are UK funds. So the idea that folks don't see it in the UK, I think, is that U.S. activists obviously were allowed and helped, you know, push the company to, you know, towards a strategy of going pure play partnerships. But honestly, the decision to go pureplate partnerships was the decision of Greg Fitzgerald. It was the decision of the company. It was the British

leadership team. And they made the call. And they made the call not because, you know, they were scared of some American investor. They made the call because it was obvious. It was the right decision to do it that way. And that happened both at countryside under their chairman John Martin. And it happened again here with Greg Fitzgerald at Bistri. It is the sensible approach to go towards a pure play partnerships model and to go after that high return on capital approach. And if markets are going to value you at three and a half times EBIT where precedent transactions are in the teens and you're a better business than those precedent transactions, then they're going to buy back shares. And, you know, I think that happily a lot of the UK house builders

are buying back shares now because a lot of them are seeing that, hey, why are we trading below book value when our business is fine? We're profitable. We're, you know, the market is getting better. I just think it's for Vistri, you know, it's that NVR on steroids quote. It's not just a cyclical recovery. It's about this transformation of the business to a pure play partnership's business, which has never been seen before. And as it gets on the radar of more and more investors there, I think that this is going to be the stock to own. It's also worth mentioning just as a kind of a last point on this. When you look at Vistri's shares right now in their market cap, they're about 12% away from making it into the Futsi 100. It's not that far away from being

in the Futsi 100. And once you get there, there's going to be a lot of institutional investors who will have to own these shares. And so, you know, the combination of buying back all these shares every day, plus, you know, now you're going to that pure play model, which should be complete this year, plus, you know, potentially getting into the Futsi 100. That's a lot of buy demand that could be here in the next, you know, 6, 12, 18 months.

I guess it's similar to the S&P 500 pop, though. I guess, you know, the share of buybacks actually do reduce the market caps since you're retiring share so they put you away. But I'm more interested in, like, the footsie 100 is a nice it's a nice pop to me but like the sustainable value creation is the buybacks and if if the buybacks kept it from the footsy 100 for another year that actually might be good well adam people can tell i'm fascinated by this idea a because aside from our mutual friend art and fulcum i think this is going to be the longest podcast ever done but b i've been

trying i remember october 2021 when you told me what you did i was like oh i've been i've been playing around with it i should just called you up and had you explain it to me but i've been like some of the partnerships stuff didn't sit but i've been trying to have you on for That's over five, that's over two years now. And we finally got you on. I'm so glad we did. Bill Chen gave a nice nudge, right? I think people can see why I was trying to get you on.

But I really appreciate you coming on. Fascity. You've done incredible work here. And looking forward to, you're going to have to do the same amount of quality work for the next one because we're going to have you back on. Yeah, that sounds great. If folks listen to it and make it all the way here to the end and they want to reach out,

they can get me at Adam at David Partners.com with an S on the end there. But I'm always happy to chat about. Vistri. This is obviously a big position for us, and it's something that we know really well. And I really appreciate your having me on the podcast, Andrew. You do a great job. You're a great friend. And I wish you a happy new year. And again, thanks for having me on. I appreciate it, man. A quick disclaimer. Nothing on this podcast should be considered an investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.

Thank you.