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Bovis Homes tops 'liquidation value' chart suggests Deutsche

Published: 11:55 23 Feb 2017 GMT

picture of houses being built
When all else fails the houses and land are worth something suggests Deutsche

Deutsche Bank has analysed the UK housebuilders and decided if they shut tomorrow Bovis (LON:BVS), Taylor Wimpey and Berkeley Group would still be good value.

Normally the broker values the builders on a price to asset and dividend yield combo, but with M&A becoming more prevalent it has re-examined 'liquidation values'.

The German broker concedes using liquidation values is unusual but does highlight the support fo the sector.

 “To be clear while we run this analysis across the whole sector, we do not see businesses being run in this manner nor do we examine catalysts to capture this value,” it explains.

“But even without valuing the ability, experience and expertise to continue to invest in a land market offering 25% ROCE [return on capital], we believe the sector offers 40% upside to current market values.”

The greatest potential lies at Bovis among the mid-caps and for the larger caps with Taylor Wimpey and Berkeley, concludes the broker.

Bovis has struggled recently, with a payment of £7mln compensation to customers for poorly built homes the latest in a run of bad news.

Even so, Deutsche calculates that the builder’s significant land asset is equivalent to its market cap and with significant work-in-progress invested and strategic land the liquidation value is over double the group’s current stock market valuation.

But such is the uncertainty around Bovis at moment that Deutsche only sticks a ‘hold’ rating on the shares and 760p share price target.

At Taylor Wimpey (LON:TW. Target price 177.5p), the broker sees 40% upside from current market to estimated liquidation value, while at Berkeley (LON:BKG) gross profit on its land bank is close to £6bn or 150% of market cap  while work in progress is equivalent to nearly half on top.

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