UK house prices: Bovis Homes share price rises as it posts record profit

 
Emma Haslett
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Construction In London
Bovis issued a profit warning in November (Source: Getty)

Housebuilder Bovis Homes has ended the week on a high, with the announcement it made a record profit in 2015. Not surprisingly, the news sent shares up.

The figures

In a statement posted this morning, Bovis said it delivered 3,934 homes in 2015, eight per cent higher than in 2014. Average selling price increased seven per cent to £231,000.

Private reservations increased by 10 per cent, while it started 2016 with 2,003 reservations, 14 per cent higher than the beginning of last year.

It bought 35 consented sites during the year, adding another 6,058 plots to its land bank, bringing its total up to 23,000 plots.

The company added that it expects to increase operating profit margin to over 17 per cent, allowing it to increase its return on capital employed to more than 18 per cent for 2015, up from 16.2 per cent in 2014.

At the end of last year it had net cash of £30m, up from £5m in 2015.

Shareholders were clearly impressed: shares rose 2.82 per cent to 948p in early trading.

15 January 2016 @ 8:30amBovis Homes Group (BVS)

Why it matters

It's a good time to be a housebuilder, if this week's wave of results is anything to go by.

To be fair, they are in the unusually pleasant position of not only experiencing unprecedented demand, as would-be buyers rush to snap up homes before the interest rate rises - but also receiving plenty of coaxing from the government, which has implemented a rash of schemes to encourage housebuilders.

December's introduction of the Help to Buy Isa, which provides up to £3,000 of government money for first-time buyers, is pretty much aimed squarely at the likes of Bovis, whose average homes fit neatly into the government's definition of "affordable" (under £250,000, just in case you were wondering).

Still: last year wasn't all plain sailing for the company, whose shares dived in November after it issued a warning saying planning delays and labour shortages could hit profits.

And a further threat this year could come in the form of that much-anticipated rate rise, although it's not exactly looming. At last count, the general consensus was November this year.

What Bovis said

David Ritchie, the company's chief executive, said:

We have delivered the Group's highest ever level of profit driven by another year of record volume in 2015. Our strategic plan is on track and we have enhanced our business structure for the start of this year to manage the planned further growth in volume.

We have invested well during 2015 in new consented land assets and achieved a strong level of conversion from our strategic land bank. Assuming market conditions remain stable we are confident in our ability to improve return on capital employed further in 2016.

What analysts said

Robin Hardy, at Shore Capital, said:

Overall, this update is better than we might have feared but having had Bovis now warn twice on margins and build costs we remain more cautious on this stock than on the wider sector. The stock remains above our fair value but in the sector shake out yesterday the shares dropped to 922p against our fair value of 890p. There is a chance that there will be some level of relief boost to the share price today but we remain cautious and cannot fully remove concerns that the group will find further ways in which to find issues that the rest of the sector manages to avoid. Also margins and returns remain below those of the peer group and growth is no faster than that of the ‘big 3’ when this is meant to be a relative growth stock within the sector.

In short

A record year for a company in a decidedly lucrative sector.

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