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Bovis Homes sees 'significant step up' in first half profits

Bovis Homes left its full year expectations unchanged and said it is on track to meet its medium-term targets

Bovis Homes
The company is on track to deliver at least £180mln of additional cash by December.

UK housebuilder Bovis Homes Group PLC (LON:BVS) said on Thursday that it expects a "significant step up in profitability" in the first half after completing more homes than expected.

Total completions stood at 1,580 in the six months ended June 30, up 4% from 1,512 the same period a year ago.

Affordable home completions rose to 550 from 372 a year ago while private completions fell to 1,030 from 1,140.

The higher proportion of affordable homes is part of the company’s response to the government’s scheme to increase the number of such developments for those struggling to get on the housing ladder.

A higher proportion of private homes is expected in the second half.

Average selling prices fall on back of more affordable home completions 

Bovis Homes said as a result of more affordable home completions in the first half, the average selling price fell to £261,000 from £277,400 last year. The average selling price of private homes rose to £335,000 from £334,700.

READ: Bovis Homes says underlying pricing remains firm

The sales rate for the first half rose 8% to 0.52 net private reservations per share per week from 0.48 last year. The rate excludes the sale of 275 units to Heylo Housing, which is to be completed this year.

Bovis Homes secured 828 plots of across five sites in the first half and agreed terms for 1,200 on a further four open market sites and three strategic conversions.

Customer satisfaction improves after housebuilding bungle

The company has been trying to restore its reputation since last year forking out £7mln to repair poorly build new homes to customers.

The group said customer satisfaction score from last October to date continues to trend well above 80%.

Cash position improves as Bovis Homes exits JVs 

At the end of June net cash stood at £40mln, compared to net debt of £32.4mln last year, and the company said it is on track to deliver at least £180mln of additional cash by December.

To boost its cash position, Bovis Homes is in the process of exiting two joint ventures in the private rental sector and is in talks to reduce its investment in larger sites at Sherford, near Plymouth and Wellingborough.

Good demand despite house market slowdown 

Despite a slowdown in the housing market, the group said it continues to see “good demand” for new homes across regions while underlying pricing remains “firm”.

The company maintained its full year guidance and said it is making “clear progress” on its medium term targets, including a 23.5% gross margin and 25% return on capital employed.

WATCH: UK housebuilding sector 'still on solid foundations' - Markets.com's Neil Wilson

"We expect to deliver a significant step up in profitability for the half year as we start to see the financial benefits from the strategic direction, changes implemented, and specific margin initiatives launched over the past 18 months,” said chief executive Greg Fitzgerald. 

Shares increased 0.4% to 1,126p in morning trading. 

Housebuilders can no longer rely on house price growth, says analyst

Meanwhile, sector peer Persimmon PLC (LON:PSN) reported a 5% increase in first half revenue to £1.84bn as housing completions grew 3.6% to 8,072. 

READ: Persimmon ploughs on with a 5% rise in revenues in resilient market

Russ Mould, investment director at AJ Bell, said: “Continuing growth for housebuilders Persimmon and Bovis Homes helps reassure a sceptical market on the prospects for the sector but there are some more worrying signs beyond the headline advances in revenue and profit.

“It is clear from both statements that the housebuilders are no longer able to rely on house price growth to drive their returns."

-- Adds share price and analyst comment --

Quick facts: Bovis Homes

Price: 1236 GBX

Market: LSE
Market Cap: £1.67 billion

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