US Edition Bovis Homes
460p -5
Questor says BUY
The past few years have been painful for the sector. In 2008 Bovis was forced to write down the value of its assets, producing a significant loss. It even passed on its dividend in 2009.
However, through the downturn builders have been snapping up plots of land cheaply. This means that should the market remain steady, margins – and profits – should rise. Any uptick in the market would have a significant effect on profitability.
Bovis said reservations for private homes in the 44 weeks to November 4 rose 22pc compared with last year, to 1,480.
However, in the third quarter, this had accelerated and reservations grew by 29pc. The growth resulted from a 10pc increase in the average number of active sales outlets in the period, to 72 from 66, and an 11pc improvement in reservations per site per week.
When Questor spoke to David Ritchie, Bovis chief executive, yesterday he argued that the company's southern focus is likely to be supportive, as the market in that part of the country is set to remain more buoyant.
Bovis is currently selling homes at more than 80 sites, with 46 of these being in the south. The southern bias will increase as the year progresses. There will be eight new sites opened in the second half of the year.
Of the other plots the company owns, 75pc of them are in the south of England, where house sales are double the rate they are elsewhere.
The company also has a strong balance sheet. The group had net debt of just £31m at the end of the quarter but this should be a net cash position by the end of the year.
As of November 4, cumulative sales expected to complete legally during 2011 were more than 2,000 homes. So, Bovis now looks on track to deliver a legal completion volume for 2011 between 5pc and 10pc ahead of last year's figure of 1,901.
Mr Ritchie said that the level of first-time buyers in the market was pretty stable but the company is building more family-sized homes, which are usually bought by people with more equity.
Bovis is focusing on its return on capital employed (ROCE) - a measure that compares returns with the amount of capital invested in the business.
The company should achieve a figure of 5pc this year, with "at least" 7pc targeted in 2012. ROCE is expected to rise further from 2013.
The shares yield 1pc and are trading on a December 2011 earnings multiple of 28 times, falling to 19 next year. This may seem high, but prospects for earning growth justify it.
The shares are a new buy.