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Bovis building up momentum

SHARE TIP UPDATE: The housebuilder has scrapped its dividend in its drive for cash generation
March 9, 2009

Housebuilder Bovis Homes appears to be faring the housing downturn more robustly than its larger, more indebted rivals, but nevertheless reported a pre-tax loss of £79m last year.

IC TIP: Hold at 392p

Strip out exceptional charges, which included a further £75m land writedown and £5.7m restructuring costs, and Bovis made an underlying pre-tax profit of £14.4m. Its underlying operating margin - famously one of the highest in the business - collapsed to 7.5 per cent from 22.4 per cent a year ago. Nevertheless, this is still a better performance than rival which reported margins of 1.5 per cent at full-year results last week.

Predictably, trading has been weak. Completions in the period fell from 2,930 to 1,817 homes and average selling prices tumbled 16 per cent to £150,800, reflecting the poor market and an increased social housing component. So far into 2009, total reservations are down 39 per cent year-on-year, although private reservations have risen 22 per cent with the sales of 330 homes agreed.

Bovis has responded swiftly by cutting the number of new housing starts by two-thirds, and shedding 60 per cent of its staff. Overheads are expected to be reduced by 40-50 per cent in 2009 and the dividend has been axed to preserve cash.

BOVIS HOMES (BVS)
ORD PRICE:392pMARKET VALUE:£ 474.3m
TOUCH:392-394p12-MONTH HIGH:649pLOW: 265p
DIVIDEND YIELD:1.3%PE RATIO:NA
NET ASSET VALUE:523pNET DEBT:16%

Year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
200456014586.820.0
200552111669.025.0
200659713579.830.0
200755612472.435.0
2008282-78.7-49.05.00
% change-49 - --86

Ex-div:NA

Payment:NA

Click for a guide to the terms used in IC results tables.

Bovis is sitting on 1,000 unsold completed units, partly because it did not start discounting as early as its rivals, but chief executive David Ritchie views this as a plus. "Our cash good news is still to come. We have already spent the money on buying the land and building them. Ultimately, they are saleable at a price, and when we find the right price, a strong cash margin will be produced." Bovis has enough consented land to produce 7.5 years of supply at today's production levels, so Mr Ritchie considers that the time to invest in new land assets will not be until 2010 or 2011.

Broker Panmure Gordon forecasts pre-exceptional pre-tax profits of £4.2m and EPS of 2.6p.