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Bovis on the comeback trail as it rewards patient shareholders with promise of special dividends

Published: 10:34 01 Mar 2018 GMT

A Bovis home
Bovis has sacrificed margin to rebuilt its reputation on the quality of its homes

Bovis Homes Group PLC (LON:BVS), regarded by some as the runt of the house-builders litter, cheered the market by pledging to whack-up dividend payments.

Group revenue in 2017 declined 3% to £1.03bn from £1.05bn in 2016, despite a 7% increase in the average selling price to £272,400 from £254,900 the year before.

READ: Bovis Homes' boss quits with immediate effect just over a week after cautious update

Total completions fell 8% to 3,645 from 3,977 in 2016, but the company said it is confident of delivering on completions for the current financial year in line with expectations, and of achieving a significant improvement in financial performance and profitability.

Profit before tax, excluding one-off items, was in line with expectations at £124.3mln, down from £154.7mln in 2016. 

The company, which ran into difficulties in 2016 when all the other house-builders seemed to be making out like bandits, said it expects to complete its balance sheet optimisation, which, combined with increased profit in fiscal 2018, should result in a significant improvement in return on capital employed.

READ: Bovis Homes shares gain as it reveals turnaround on track after faulty homes scandal

The group ended the year with a net cash balance of £145mln, up from £38.6mln a year earlier and pledged to return large chunks of cash to shareholders.

The full-year dividend was cranked up 6% to 47.5p from 45.0p the year before; a special dividend, equivalent to around 45p a share, is expected to be paid towards the end of 2018 at a cost of £60mln, with another £180mln of special dividends to follow over three years to fiscal 2020.

The much-improved performance will be regarded as justification by management for rejecting a merger with smaller rival Galliford Try a year or so ago.

Greg Fitzgerald, Bovis’s chief executive officer (CEO) and the former CEO and chairman of Galliford, expressed pleasure at the level of operation progress made during the year.

“We have significantly improved our customer satisfaction through a series of initiatives and controlled period ends. In addition, we have completed our restructuring, invested in our people, systems and processes, and comprehensively reviewed our land bank,” Fitzgerald said.

“In 2018, we will deliver a controlled increase in volume, continue to build upon our high level of customer service, drive profitability, and complete our balance sheet optimisation. We will also continue to invest in our people and systems, and I'm particularly looking forward to launching our new housing range in April," he added.

Numis Securities said the recovery at Bovis is gathering pace and that the results were slightly ahead of its estimates, prompting a 5% upgrade to its profit before tax (PBT) forecasts for the current year.

“Underlying PBT fell 20% to £124.3m (Numis est. £120.4m), with the fall reflecting the restructuring of Bovis in order to improve customer care, production efficiencies and the rebuild returns through higher margins and a more efficient balance sheet. Progress in this respect is well advanced, and arguably ahead of target,” Numis said.

“Looking forward, Bovis looks well placed to build on this progress but this should also be supported by rising margins as the group benefits from a more cost-effective build process and lower overhead costs. These underlying factors should also be supported by further management actions to optimise prices, review specification and the benefits of the new housing range which should generate higher revenue at lower costs, without causing disruption,” the broker said, as it reiterated its ‘buy’ recommendation and 1,275p price target.

The shares were up 2.5% at 1,077p.

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