Bovis excels in volatile week

20th Mar 2011 17:12

In a week that saw the FTSE 100 fall 4% at one stage, Bovis Homes stood up pretty well - adding 4% - backed by a well-received set of results on Monday that included a first dividend since 2008 and news of a decent start to 2011.Chief executive David Ritchie was in upbeat mood when I met him for lunch, shortly after City analysts had given the figures a loud round of applause.Bovis made a pre-tax profit of £18.5m, up from £7.5m in 2009, driven by higher volumes, price increases and cost cutting. Revenue rose to £298.6m from £281.5m last time. "Reassuring results," reckon the wise men at Royal Bank of Scotland in what the Kent-based firm called its most significant year of investment since flotation in 1997.The self-styled "middle market developer" grew its land bank by about 3,700 plots in 2010, mostly in the south, taking the number of sites there to 68%. That cost the firm £203m, though the gross profit potential is put at £181m. Sales enquiries jumped 24% in the first nine weeks of 2011, visitor numbers rose 28%, and reservations are up 11% on a similar number of active sales outlets. Prices are "stable". I was concerned about poor return on capital employed (ROCE), down at around 3% following the housing market crash compared with 17% in 2007. So was Ritchie, but the Scot it confident of turning that around."We've bought lots of assets that are not contributing, but they'll eventually wash through the system," he said. "We think we'll double ROCE by 2013 as more sites open and volumes increase."Around 33 new sales outlets will open this year - 23 in the first half - increasing the average number of active outlets by 10 to 76. The clever chaps at Peel Hunt are worried about Bovis's valuation compared with rivals, putting ROCE at about 4-5% for 2012. Persimmon is seen nearer 8-9%.While there's little doubt Bovis is already rated highly, there's plenty of potential there to keep investors warm and cosy - a dividend of 3p a share is theirs - even without a dramatic housing market recovery.