Shares in under-pressure housebuilder Bovis Homes PLC (LON:BVS) got a lift Monday after a weekend newspaper report said a major shareholder has suggested rival Berkeley Group PLC (LON:BKG) should launch a takeover bid.
The Sunday Times said that Schroders Investment Management – which owns around a 6.4% stake in Bovis, its second largest shareholder - has written a letter to Berkeley suggesting an all-share merger with its fellow FTSE 250-listed peer, to diversify its land outside London.
However, as analysts at Liberum Capital pointed out in a note to clients: “Comments in the article downplay Berkeley's interest in this, and we would agree - it has not done major acquisitions before and has plenty of its own opportunities in the land market.”
But they added: “However, this article may suggest that shareholders see a sale or merger as a way of crystalising value in Bovis, which may serve to ‘put it in play’”.
Liberum retains a ‘hold’ rating and 775p price target on Bovis shares.
In early trading, Bovis shares were up 5p at 820p. Shares in Berkeley Group were even higher – up 53p to 2,840p.
Bovis shares dropped below 800p at the start of the year after the firm issued a profit warning because it failed to complete the number of homes it expected by the end of 2016.
READ: Bovis warning ....
A week later, the firm’s chief executive David Ritchie quit, leading the stock to rally on speculative interest, although it has drifted lower since.
Trade to be had …
Shore Capital analyst Robin Hardy said: “If Bovis is seen as being in play or potentially in play the share price is likely to rise and whatever more fundamental view on valuation we might have will need to be set aside.
“While we believe that a bid less likely, we would expect a potentially material step up and see that there is a trade in the shares is to be had here.
In a note to clients, he added: “We have put our previous HOLD recommendation under review because the pragmatic position would be to expect a jump in the share price.
“The risk is that a rebuttal or denial of interest is issued and Bovis’ share price rattles back to previous levels but the immediate effect would be to expect the shares to step up.”