Bovis Homes - riding the wave

Bovis Homes Group: Like other house builders, Bovis is benefitting from the strong market conditions engendered by the government. I do have my reservations that, with upward pressure on interest rates, cost inflation and a price bubble building in London, that 2015 (post the general election) will prove tougher for the industry. For now though, that seems churlish, especially in the case of Bovis. Their first half numbers showed revenue up 75%, pre-tax profit up 166% and eps up 167%. Net debt was almost flat at £45.3m against £48.4m, despite building the land bank from 14,638 plots to 17,702 plots (roughly six years worth at current build rates). They enjoyed a 54% increase in legal completions and 20% higher achieved prices (helped by a mix effect of selling bigger houses). They almost have their targeted sales for 2014 in the bag too. All the cylinders seem to be firing at the same time. The key bit for income investors is their new, more generous, dividend policy. They are planning to pay 35p for the 2014 financial year, against 13.5p last year. They will then pay at least the same again in 2015, before settling to pay out a third of earnings plus returns of any surplus cash. Even after the appreciative jump in the share price to around 840p, that gives a growing yield of 4.2% and a PE ratio not much more than 10x. Yes, UK house building is cyclical with potential interest rates rises and affordability issues casting a shadow. On the sunnier side, there is a structural undersupply of new housing to provide underlying support to the industry. If you want to play the sector, then Bovis seems to tick all the boxes right now.

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about.