Bovis boasts 'significant improvement' in profits but LFLs slow

8th Jul 2014 07:44

- Legal completions up 54% in H1- Average sales price up 11%- Operating margin above 15%, from 11.1%Housebuilder Bovis Homes said first-half profits would be "materially" higher year-on-year after it increased the number of homes it built by 54%, although this shows evidence of a slowing down from its breakneck speed of growth in the first quarter. The FTSE 250 company, which is focused on the south of England but has long-avoided investing in London, said recent Bank of England action to create a more stable housing market would be beneficial for the sector, and that the improving economic outlook and significant imbalance between supply and demand for housing provided an attractive backdrop for growth and strengthening shareholder returns.On top of legal completions rising 54% to 1,487 homes, average sales price on these new homes rose 11% from £188,500 to £210,000 due more to a stronger mix of homes than a "modest" improvement in house prices. This has led to a "significant improvement" in housing profit, which, when combined with modest land sale profit and a lower overhead ratio, drove operating margin up above 15% from 11.1% in the comparative period.Bovis's return on capital employed for the 12 months to June 30th stood at 13.2%, up from 7.7% a year before, supported by the increased operating profit and accelerating capital turn.Chief Executive David Ritchie said the record levels of completions was driven by the investments in the business made during the last few years. "This is expected to lead to excellent first half results with a material improvement on last year," he said. "Trading continues to be robust, further increasing our confidence in delivering both strong volume growth for 2014 and an enhanced forward sales position for 2015."The market for land was "active, but orderly" and Bovis continued to add to its land bank at above hurdle rate margins and returns, acquiring 4,597 consented plots on 23 sites, its strongest ever half year period of land investment. "The group's results are now benefiting from our assertive, disciplined strategy of growth through land investment and we are well positioned to deliver our 2014 targets," said Richie. "Looking further ahead we are confident that further improvements in key financial metrics can be delivered and that ongoing land investment will continue to strengthen the business and further enhance shareholder returns."Broker Panmure Gordon said any slight moderation in the sales rate recently was to be expected and reflects normal seasonality within the business and the fact that Help to Buy was launched this time last year."This is a positive update from Bovis and we believe that the group will continue to report strong profits growth in the coming months," analysts said.Shares in Bovis were down 2.85% to 768p at 09:00 on Tuesday.OH