Bovis shares have risen on hopes Berkeley will buy it

 
Emma Haslett
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Berkeley's projects include a giant development on Nine Elms Lane in South London (Source: Getty)

Shares in housebuilder Bovis rose in morning trading after its biggest shareholders suggested a takeover by a rival.

Shares were up 3.6 per cent at 826p in mid-morning trading after it emerged this weekend that Schroders had written to rival Berkeley Group to propose an all-share merger.

The suggestion follows a shaky patch for Bovis, which in December warned on profits and said it will complete on fewer homes than originally expected in 2016, deferring 180 completions into this year.

The warning claimed the scalp of David Ritchie, Bovis' chief executive of eight years, who stepped down earlier this month.

Shares in Berkeley Group - which since the Brexit vote has had its own share of difficulties - rose 1.8 per cent to 2,837p in mid-morning trading.

Unlikely bedfellows

Analysts were sceptical of the plan for Berkeley Group to buy Bovis.

"While a profit warning, operational issues, a chief executive exiting stage left and a company trading at a 32 per cent discount to the sector has all the ingredients for an exciting tale of M&A, it lacks in our view a credible plot," said Jefferies equity analyst Anthony Codling.

"Housebuilder M&A typically occurs when landbanks are short, but today they are long. Owned and controlled landbank lengths range from 3.7 years to 11.2 years (sector average 5.1 years) and if we include strategic land, the range is 4.7 years to 13.4 years (sector average 10.5 years)."

However, others were more optimistic.

"The sector could do with a bit of movement on this front, if only to help distract from the ongoing worries about whether house prices will maintain their march higher," added Chris Beauchamp, chief market analyst at IG.

"If there is to be a bidding war, Bovis is a good candidate, with the recent dip in performance masking what is still a healthy company trading at relatively undemanding valuations."

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