Bovis Homes powered ahead in 2011 as higher margins, selling prices and volumes all contributed to a 69 per cent increase in operating profits. Investors who followed our buy advice in January are already sitting on a modest paper gain and, with private reservations in the year to date running 41 per cent ahead of last year's levels, the investment case is well supported.
In a flat housing market, Bovis' profit margins are improving for two reasons – lower construction costs and lower land prices. Housebuilders hold land at either cost or realisable value, whichever is lower. That led to huge writedowns in 2009, but the homes built on this written-down land still only break even on sale. That means the company's margins should automatically improve as the pre-crisis land bank is flushed off the books, says chief executive David Ritchie.
To speed this process up, Bovis has bought land rapaciously since the crash, although its appetite is now waning – purchases totalled £134m last year, down from £203m in 2010. Gross margins hit 20.8 per cent last year, up from 17.9 per cent in 2010 but are still short of the 25 per cent industry target.
Brokerage Numis has increased its 2012 forecasts by 11 per cent and now expects pre-tax profits of £46.6m and EPS of 26p (from £32.1m and 23.4p in 2011).
BOVIS HOMES GROUP (BVS) | ||||
|---|---|---|---|---|
| ORD PRICE: | 482p | MARKET VALUE: | £644m | |
| TOUCH: | 480-482p | 12-MONTH HIGH: | 521p | 314p |
| DIVIDEND YIELD: | 1.0% | PE RATIO: | 28 | |
| NET ASSET VALUE: | 545p | NET CASH: | £50.8m | |
| Year to 31 Dec | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2007 | 556 | 124.0 | 72.4 | 35.0 |
| 2008 | 282 | -78.7 | -49.1 | 5.0 |
| 2009 | 282 | 4.8 | 2.8 | nil |
| 2010 | 299 | 18.5 | 10.6 | 3.0 |
| 2011 | 365 | 32.1 | 17.5 | 5.0 |
| % change | +22 | +74 | +65 | +67 |
Ex-div: 28 Mar Payment: 25 May | ||||
