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Bovis: trading statement
Housebuilder Bovis issued a relatively positive trading update for the year to December 2005. Legal completions for the year were in line with 2004 (compared to a 16% decline as at the half year) but the average sales price fell to £175,500 (H1: £179,700; 2004: £201,100).
Profits for the year are expected to be “marginally” below market expectations.
The company says operating margin has “remained strong and is anticipated to be approximately 23.5% for 2005”. Operating margin in H1 was 23% (2004: 25.9%).
The company appears to be maintaining volumes and margins by building ever smaller houses, which we take to be a sign of the weakness in the market. Average house size declined by 11% for the year as a whole, compared to a decline of 9.2% in average size at the half year.
The company has introduced new products earlier than previously expected resulting in a stronger flow of reservations. Sales reservations at the end of 2005 stood at 3,360 units, providing a carry forward of 660 sales for 2006, 22% above last year.
The current year results should be respectable, mostly due to heroic efforts at marketing but for the medium term, the writing is on the wall, for those who wish to read it.
The share trades at 761.33p, on a prospective PE (2006 earnings) of 9.9x, in line with the sector with a yield of 3.9%.
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