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Bovis trims landbank on referendum uncertainties

The housebuilder is being more prudent with its landbank investments in the face of market uncertainty
August 16, 2016

Shares in cyclical housebuilders were some of the worst affected following the announcement of the referendum. Despite posting solid trading figures for the first half of the year, Bovis Homes (BVS) is taking action to protect its returns against an uncertain market backdrop. In a bid to mitigate any potential market downside, management has negotiated higher investment hurdle rates when purchasing land, both in terms of the required profit margin and return on capital employed (ROCE).

IC TIP: Buy at 805p

Legal completions were up 5 per cent to 1,601 new homes during the period, and the average sales price increased 14 per cent to £254,500. This helped push up ROCE to 18.1 per cent, from 15.5 per cent in the first half of 2015. However, Bovis acquired fewer plots of consented land, which meant the related land bank stood at 19,477 plots at the end of June, compared with 19,814 at the end of 2015. Chief executive David Ritchie says a slowdown in purchases immediately before and after the referendum means the group's land investment for the year will be lower than anticipated.

Analysts at Numis expect adjusted pre-tax profits of £185m this financial year, giving EPS of 111p (from £160m and 95p in 2015).

BOVIS HOMES (BVS)

ORD PRICE:805pMARKET VALUE:£1.08bn
TOUCH:803-805p12-MONTH HIGH:1,205pLOW: 430p
DIVIDEND YIELD:5.1%PE RATIO:8
NET ASSET VALUE: 718pNET DEBT:1%

Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201535153.832.113.7
201641361.736.515
% change+18+15+14+9

Ex-div: 22 Sep

Payment: 18 Nov