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Bovis a 'buy' for Peel Hunt as Galliford acquisition expected to boost profits

Peel Hunt restarted coverage with a 'buy' rating, upgraded from 'hold' and a target price hike to 1,420p from 1,025p previously

Bovis Homes -

Bovis Homes PLC (LON:BVS) has been upgraded to a ‘buy’ recommendation by Peel Hunt ahead of the merger with Galliford Try’s (LON:GFRD) housing businesses in the new year.

In November, the FTSE 250 housebuilder agreed to acquire Galliford Try’s Linden Homes and affordable housing arms for £1.08bn price, to be met through cash and shares, with Galliford shareholders to hold 29% of the enlarged group.

READ: Bovis Homes seals £1.1bn deal for Galliford Try's housing arm

At the time, Bovis boss Greg Fitzgerald, said the deal would create a leading UK housebuilder with an enhanced customer proposition and the ability to increase delivery to more than 12,000 new homes per year.

Peel Hunt upped its target price to 1,420p from 1,025p previously as it forecasts underlying earnings (EBITDA) will come in at £183mln for 2019 and then double in the following year to £372.1mln.

“Synergies from rationalising the divisional structure and procurement benefits should help the group post double-digit profit growth over 2020-22E on an unchanged market backdrop,” said analysts in a note to clients on Monday.

However, the broker noted: “While the promised £35m+ of synergies are clearly valuable, we think the potential growth and re-rating within the partnerships business is where the bigger upside lies.”

The forecasts are based on an unchanged political backdrop, but the general election result will be important, as “a meaningful Tory majority should supercharge the performance,” the analysts added.

Housebuilders are among those expected to benefit from a Conservative election win, with some measures to boost the sector expected from a post-election budget.

Bovis is currently at a year-high of 1,243p, having risen 0.5% in mid-morning trading on Monday.

Quick facts: Vistry Group PLC

Price: 1342 GBX

LSE:VTY
Market: LSE
Market Cap: £2.92 billion
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