Broker snap: UBS ups target for Bovis

21st Mar 2012 11:28

Shares in Bovis Homes were performing strongly on Wednesday morning after UBS raised its target price on the house builder by nearly a fifth; however the broker did maintain its sell rating on the stock on valuation grounds."Bovis should see substantial increases in profitability over 2012-14E as new, more profitable outlets are opened and legacy low return land is sold," UBS said. It forecasts pre-tax profit growth of 63% and 49% in 2012 and 2013, respectively, from a low base.However, the broker notes that returns are "still behind the pack" - "we only see the return on capital employed [ROCE] meeting cost of capital in 2014E". Nevertheless, it does not that management is doing what they can to drive returns, "which is encouraging"."Management needs to focus on re-investing net cash into new high return sites, boosting volumes (and market share) and earnings." With the group expected to be very cash generative in 2013 (based on UBS's forecasts), the broker thinks that the company may consider boosting dividends whilst still remaining net cash.With UBS raising its pre-tax profit forecasts by 5% for 2012-15, the target price is lifted from 395p to 465p.Shares were up 3.77% at 511.5p by 11:28.BC