Bovis profits slump in H1 but investors welcome special divi, better margin

Housebuilder Bovis Homes reported a 31% drop in first-half pre-tax profit on Thursday but the shares rallied as investors welcomed a hike to the dividend, a special dividend and healthy margins as they put their faith in new chief executive Greg Fitzgerald.

In the six months to the end of June, pre-tax profit declined to £42.7m from £61.7m as total completions dropped 6% to 1,512. The company, which fended off takeover bids from Galliford Try and Redrow this year and set aside £10m to fix issues with some faulty homes, said profitability was dented by increased build costs and investment and the costs related to its bid approaches, among other things.

Group revenue edged up 4% to £427.8m and the average selling price came in at £277,400 from £254,500 and Bovis said it was on track to conclude all legacy customer service issues before the end of this year.

The company also said it is now aiming to build 4,000 homes a year, down from a previous target of 5,000 to 6,000, and that it will “significantly” increase its focus on affordable housing.

Bovis said it was recommending a 5% increase in the ordinary dividend in 2015 to 47.5p, with a further 20% increase in 2018 to around 57p. In addition, it announced its intention to return surplus capital to shareholders via special dividends totalling £180m or around 134 p per share in the three years to 2020.

The group also noted an improvement in the gross margin to 23.5%.

Chief executive Greg Fitzgerald said: “The first half of 2017 has been a period of stabilisation and strategic reorganisation for Bovis Homes Group. Since joining the business in April 2017 I have visited all our offices and the vast majority of our developments, and have been hugely impressed by the desire of our dedicated staff to address and rectify the challenges faced by the business. As a result I am confident that our new strategy will set the group on the path to sustainable, profitable growth.

“The new strategy of disciplined volume growth, allied with a renewed focus on customer satisfaction and build quality, will deliver the homes that are required in the locations where people want to live. The group's strong balance sheet and valuable land bank mean we are well set to provide the stable returns to shareholders that their patience and support have deserved."

Neil Wilson, senior market analyst at ETX Capital, said: "Profits dipped as expected, with the profitability hit by tackling the various legacy issues, but the half-year results show good progress and a believable set of goals for the housebuilder."

Meanwhile, George Salmon, equity analyst at Hargreaves Lansdown, said: "While shares in many of the other UK builders have soared in recent years, Bovis has spluttered. Consequently, the focus of half year results was not the numbers for the last six months, but new CEO Greg Fitzgerald’s plans to turn the group around.

"The new strategy seems sensible enough. It even includes pledges to return the cash generated from slimming down non-core operations to shareholders. In a big way too: the plans suggest around a third of Bovis’ current market cap will be in shareholders’ pockets by 2020."

At 0915 BST, the shares were up 8.3% to 1,142p.