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Bovis Homes is seeing more part-exchange deals as Brexit uncertainty bites

"The group's improved operating performance including the transformation of our customer service and step change in build processes and quality is driving a significant improvement in our financial performance," said Greg Fitzgerald, the CEO of Bovis
Bovis Home
Brexit ... you can't get away from it, even when buying a house

Houses builder Bovis Homes Group PLC (LON:BVS) said it is fully sold for this year and on target to achieve record profits in 2018.

The sales rate per outlet per week so far in 2018 is on a par with 2017 at 0.51, with pricing in line with the group’s expectations.

The group said uncertainties over the effects of Brexit has had an effect on discretionary buyers, with the group seeing an increase in the number of buyers going for the part-exchange option. The number of reservations received from buyers opting for part-exchange is currently running at around 15%, up from 8% in the first half of the year.

Having dropped the ball a few years back in terms of the quality of its homes, Bovis has been keen in recent years to emphasise in its stock market announcements the improvements it is making to build quality; today’s trading update, which covered the period since the beginning of July, was no different with the group highlighting its HBF Customer Satisfaction score for the year from October 1, 2017, was trending well above 80%.

Bovis said it is confident of achieving its target of an HBF 4-star customer satisfaction rating for 2018.

Help-to-Buy boost

The government’s ‘Help to Buy’ scheme has been like manna from heaven for the housebuilding sector and not surprisingly the company said it was pleased with the government’s decision to extend the market-distorting scheme for a further two years and keep the gravy train on the rails.

In conclusion, the group said it is on track to achieve a number of its medium-term targets as early as this December.

It expects full-year completions to be in line with expectations, with continued progress on margin initiatives and improved operating performance.

Peel Hunt said the one data point that suggests a softening market was the one relating to an increase in the number of part-exchange customers.

“Given the group's southern focus this is not a huge surprise,” the broker said, as it disclosed it would be leaving its estimates unchanged while admitting estimates for 2019 “may start to look a bit of a stretch if market conditions are unchanged”.

“The shares have slipped 11% YTD [year-to-date], marginally better than the sector decline of 16%. The shares have underperformed the sector in the last three months with a decline of 6% vs a 1% fall for the sector. In valuation terms the shares are trading on a P/NAV [price/net asset value] of 1.33x for CY19 ( the calendar year 2019) vs a sector average of 1.5x,” Peel Hunt noted. 

“Given the RoE [return on equity] is forecast to be 14.6% vs a sector average of 19.6% this rating looks full enough on a relative basis. We continue to see better value in Countryside and Redrow,” the broker added.

Liberum, which rates the shares a ‘hold’, expressed a similar view, saying the shares look a little expensive compared to peers as the market is “pricing in further success in improving the business”.

Liberum’s target price is 1,100p; the shares were down 5p at 1,035.5p in early deals.

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Article
February 28 2019

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