The reader is always right: IC readers, anyway. After we analysed some of the travails facing Bovis Homes (BVS) following its Christmas production warning, which led to the departure of chief executive David Ritchie, one subscriber suggested the problems ran deeper. "Chief executives do not fall on swords because of the company's failure to meet end-of-year targets by a modest margin of 5 per cent," he wrote. That looks on the money. The housebuilder has now had to slow down production to resolve building issues, with 2017 completions now expected to be 10-15 per cent below those achieved in the reported period. This wiped 10 per cent off the share price on results day.
Chairman Ian Tyler admitted Bovis's production had not been "robust" enough to handle the company's growth and industry resource shortages, while customer service had fallen short. As well as slowing production, the company is to improve its quality assurance and to form a 'Bovis Homebuyers Panel' to answer complaints such as those found on the 'Bovis Homes Victims Group' on Facebook, which has around 1,400 members. A one-off provision of £7m against these issues dragged pre-tax profits below the previously stated range of £160m-£170m.
The group's underlying cost of construction was 11 per cent higher due to ongoing skilled labour shortages, but average selling prices increased by a tenth to £255,000. Overall, despite slight growth in completions, return on capital employed fell from 18.3 per cent to 17 per cent. The company may sell more land or sign strategic partnerships to improve capital efficiency.
Management will need to have an eye to the pipeline. Bovis had 4.7 years' worth of consented plots at the year-end, down from five a year previously and below a sector average of 5.2. At least the cash pile is higher and management will maintain the dividend in 2017, despite the impact of its operational improvements on cash flows and earnings. Analysts at Numis have reduced their pre-tax profit expectations for 2017 to £130m, giving EPS of 78p (down from £155m and 90p in 2016).
| BOVIS HOMES (BVS) | ||||
|---|---|---|---|---|
| ORD PRICE: | 752p | MARKET VALUE: | £1.01bn | |
| TOUCH: | 751.5-752.5p | 12-MONTH HIGH: | 1,028p | LOW: 430p |
| DIVIDEND YIELD: | 6.0% | PE RATIO: | 8 | |
| NET ASSET VALUE: | 755p | NET CASH: | £38.6m | |
| Year to 31 Dec | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2012 | 0.43 | 54 | 30.7 | 9 |
| 2013 | 0.56 | 79 | 44.9 | 13.5 |
| 2014 | 0.81 | 133 | 78.6 | 35 |
| 2015 | 0.95 | 160 | 95.4 | 40 |
| 2016 | 1.05 | 155 | 90.1 | 45 |
| % change | +11 | -3 | -6 | +13 |
Ex-div: 23 Mar Payment: 19 May | ||||
