'When I look at Bovis Homes Group (LSE: BVS), I see another big dividend payer whose shares appear to be unfairly overlooked.
Bovis did go through a bad patch and lost a fair bit of customer confidence, but under a new boss and the implementation of a turnaround plan, were looking at forecasts for a return to earnings growth this year after two years of falls. Analysts are predicting a 37% EPS gain for the current year, with a further 16% pencilled in for 2019.
With 2017 results, delivered on 1 March, chief executive Greg 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.
And though the firm saw a fall in profits, the average selling price rose by 7%, and year-end net cash soared by 275% to £144.9m.
Crucially, the dividend was lifted 6% to 47.5p per share, for a yield of 4.1% on the current share price of around the 1,170p level.
And in 2018, the company will be embarking on a plan to return total special dividends of £180m over the three years to 2020. Thats equivalent to around 134p per share, and should boost income very nicely in 2018 and beyond.
The total forecast for this year of 98p would provide a yield of 8.4%, rising to 8.8% if 2019 predictions come good.
P/E multiples dropping to around 10 look too cheap for a company generating these levels of cash and paying such big dividends.'
Profits in-line with expectations, full year dividend up 6% to 47.5p, and the board confirmed its intention to pay a special dividend of around 45p towards the end of the year and targets making further payments in 2019 and 2020.
"European equity markets are higher Friday, following on from new US highs and the 14th straight day of gains in Hong Kong.Recent market highs have been based on expectations of higher global growth and increased corporate earnings, so the start ..."
"It looks like the housebuilding sector will have to wait a little longer for further consolidation in an industry starved of activity for a decade, after news that a deal between LSE:BVS:Bovis Homes and LSE:GFRD:Galliford Try is definitely ..."
Investor's in this field may also like to take a look at 'Michelmersh Bricks' that posted their finals today and cheered investors by doubling their dividend (Final) to 2p. Also now going to pay a interim dividend.
The offers are opportunistic. Bovis is going through a bad time, but has a strong enough balance sheet and trading position to ride out the storm. A takeover or merger might happen, but I can't foresee it for anything under £10 a share.
stable door...bolt?? acknowledging that customer standards had been falling "for some time" is a bit revealing. Once you get a bad name in the marketplace (Barratt timber frame on TV anyone?) it takes a long time, or a deep discount, to get the buyers back. Impressed that they are still raising the divi, and actually there could be a good buying opportunity at the moment after today's fall. But as ex-divi date is a month away, i think just monitor their price before jumping back in. And a quick check round their Kent sites to see how busy they are, after all the artisans went home to Poland!
Much more in this for BVS than BKG but hard to see it happening.
Several stories about Schroder trying to persuade Berkley Group to merge with Bovis, although none seem to give it much chance of going anywhere. No idea why Tony P would consider a merger with a company having ~25% BKG's market cap and some serious problems. I guess a buy-out to cherry-pick some of the land bank might work for them- the value of the plots would I'm sure higher in BKGs hands, but unclear if even this would interest BKG. Maybe with Central London flat, this could help BKG increase volume elsewhere but I guess there would be better fit with others like RDW or PSN as mentioned below.
From the leaderless BVS side, I'm such a deal has plenty of attraction, Schroder said to hold 8.1% of BVS so understandable why they would suggest it.
A City attempt to lay the foundations of a £5bn merger of Bovis Homes and Berkeley Group is on shaky ground, with Berkeley understood to have rejected the idea.
Schroders, Bovis biggest shareholder, wrote to Berkeley proposing an all-share merger following a difficult trading period for Bovis which claimed the scalp of its chief executive David Ritchie.
Bovis had issued a surprise profit warning at the end of 2016, saying that pre-tax profits were likely to be flat this year at between £160m and £170m, below analyst predictions of £180m, due to a slowdown in the rate of building and sales in December.
The string of events prompted Schroders to target a merger with Berkeley, which mostly builds homes in London and the South East. Bovis activity is also concentrated on that area.
But Berkeley sources said the company had dismissed the call, instead choosing to concentrate on growing through partnerships with the likes of the National Grid, with whom it signed a £700m joint venture to develop new homes on disused land owned by the power provider in 2014, rather than mergers.
Other housebuilders, such as rivals Redrow or Persimmon, could still be in the frame to buy Bovis, which has struggled in recent months with slowing sales of its homes amid wider market uncertainty.
Berkeley itself has not been immune to a slump in the market: last month it amended its five-year dividend plan to return some cash through share buybacks instead. It also said in December that the number of reservations for its homes had fallen by a fifth since the referendum, signalling the impact of the slowing London property market on the company.
It hit out at Government policy which it said was increasing demand rather than supply, saying while it had helped in some areas, it was having a negative effect on the capital.
Schroders declined to comment on the terms of its proposals.
Many thanks HE, much appreciated and very informative. I took the plunge with a reasonable amount of BVS, as you point out, I'm hoping the new broom when appointed will tighten up cost controls, completions and thereby hopefully EPS too.
Dividend cover is normally quoted as earnings after tax/ dividends paid (EPS/DPS will give same value). This is over 2 for BVS which is generally considered a relatively safe level. Below 1.5x would be a concern
Many investors prefer to check whether dividend is covered by cash flow, as profit and EPS numbers are often subject to many adjustments, one-offs etc and don't always present the true picture. It is harder to manipulate the cash flow numbers.
That is the historic cover- in terms of whether dividend is safe the question is will earnings & cash flow continue to exceed dividends. The forecast data can be found in the two links below which I understand compile data from multiple broker analyst forecasts. Digital Look give adjusted EPS for historic data 4-traders use unadjusted.
The BVS numbers suggest dividend will continue to be covered by earnings at ~2.
Broker forecasts are of course a more or less sophisticated guess and the further out the forecast the less confidence can be put in the numbers.
BVS has just lost the CEO who resigned following an unexpected warning about 2016 earnings being below expectations due to late completions. That should not be a major direct impact on the numbers but is an indication BVS have not been as tightly managed as some other builders. BVS has lower valuation because it has under-performed. If a new COE turns it around quickly, the shares may do well medium term, but that will take time and there is always some risk that the new boss will identify other historic issues and write-down some asset values on arrival
to make his performance look better in the future. If I was looking to invest in just one housebuilder - I think I'd go for PSN or TW which payer hgher dividends- although mainly as predefined capital return payments.
The big unknown is of course the housing market, the underlying economy, interest rates etc. Some have been warning the market is due for imminent collapse for several years- but the demand and house prices has continued to increase, the risks of a housing slowdown should be understood, the builders have become prone to big SP moves on newsflow- among the worst hit after the Brexit vote.
It is scary when CEO and/or CFOs of PLCs resign in an unscheduled manner. However, I think this is unlikely to be due to anything that has been hidden, but a repeated failure to execute at the same sort of levels as comparable companies and then the latest calamity on top.
Strange that I posted on a board last night that I abandoned trades in Bovis until such a time as their was a change of management at the highest level.
I'd like to see a new CEO, and then further 'resignations' followed by new appointments, possibly from outside the company.
There has clearly been something wrong at Bovis for a few years when they repeatedly fell short of high expectations in a booming property market, resulting in all those profit announcements that caused falls in the share price.
Compare the last 5 years of the Bovis chart against PSN, BDEV,
A pretty terse RNS for departure of CEO of 18 years. No reason given but have to suspect that the recent unscheduled annoucement of shortfall of Completions was a factor, probably a final straw.
Short term likely to suffer from the uncertainty - longer term picking the right new CEO will be positive and maybe at current prices this puts BVS into play for one of the bigger players looking to pick up land bank and volume.
9 January 2017
Bovis Homes Group PLC
The Board of Bovis Homes Group PLC announces today that David Ritchie, Chief Executive, has notified the Group of his intention to leave the Company. David will step down as Chief Executive of the Group and as a Board Director with immediate effect but will remain with the Group until 28 February 2017 to assist with the process of transition.
The Board has appointed Earl Sibley, the Group's Finance Director, as Interim Chief Executive with immediate effect and will immediately initiate a process to appoint a permanent successor which is expected to take several months.
Commenting on his decision to leave, David said:
"It has been a privilege to serve Bovis Homes as its Chief Executive over the last eight years as the Group has doubled in size and delivered record profits. I believe now is the right time for someone new to lead the Group into its next phase of development. I have spent over 18 years working for this great company and I wish Bovis Homes every success in the future."
Ian Tyler, Chairman, commented:
"On behalf of the Company, I would like to thank David for his major contribution to Bovis Homes over his 14 years on the Board initially as Group Finance Director, then Group Managing Director and as Chief Executive since 2008. During his time as Chief Executive, the Group successfully navigated the housing market recession and has grown rapidly since 2009. David was instrumental in preparing the Group for growth and then implementing the new strategy. We wish David the very best for the future and every success in his next venture."
Just to be clear, i'd heard similar quality/timing stories in this region during 2016 not just at Xmas, and had sold out my SIPP holdings in January and May in this housebuilder, and switched into two others. I suspect one problem is sufficient, decent artisans to do all the final fixings (when your salary gets 20% less Euros > home).
Yep that's my read also Pendil. i.e. Management have been quite rubbish, but its end markets are still very strong (indeed even Bovis avg selling prices were up 10%, which is encouraging when it delivers the delayed sales next month).
I think the management need to be changed and shareholder return prioritised properly - Compared to the great returns all other housebuilders Bovis needs to be keeping up with its competitions performance much better -- OR it should be bought out by them.
(at only a PE of 8, a yield of around 6% and is valued around its book value --- it certainly would make a very good buyout for a proper housebuilder) IMHO ...
Main negative seems to be "slower than expected build production ... during December". Any idea what "build production" means? Does it just mean they didn't build the houses they expected to. i.e. management incompetence rather than any softening in demand?
Bovis has tended to underperform most of the sector and not the strongest player, and yet is still reporting plenty of positive data and outlook. Main negative -Cost moderating but still increasing.
Some key points :-
"Another year of both growth in volume and increase in average sales price is expected to deliver record revenues for the Group in 2016. As a result, we are on track to deliver increased profit and a further improvement in return on capital employed, in line with our expectations.
The backdrop for housebuilding in the UK continues to be positive with demand for new homes running ahead of housing supply. Political support remains in place as evidenced by the improved planning regime and the continuation of the Help to Buy equity loan scheme. At the same time unemployment continues to be low and the mortgage market remains competitive.
Aside from the weeks immediately after the EU referendum, the Group's sales during the year to date have followed a normal seasonal pattern..
We have reservations in place to achieve over 5% growth in legal completion volume in the year and sales prices remain robust as we continue to sell homes at prices in line with our expectations. The average sales price for 2016 is expected to be around 10% ahead of last year, driven by improving mix and increased underlying market pricing.
The availability of labour remains a constraint on activity across the sector and whilst our sub-contract cost inflation rate has moderated since the second half of 2015, we continue to see market cost increases.
Our balance sheet remains robust and we anticipate a net cash position at the end of the year.
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