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so last june they said 1670 (up from 1300+), now its 1450... is this an upgrade or a downgrade If this is their target price possible for a year thats a 50% ish upgrade Still very undervalued
Nice movement up here, top riser in the sector today!
2018 is a long way off, and potentially we could experience a recession around or indeed before then. But when you look at the broker forecasts for 2018 as the strategy here unfolds, where else can you get this value? 2018 forecasts: Bovis p/e ratio = 5.4 P/b ratio = 0.89 Dividend yield = 8%
As with me. (CJ , did you get where you are today without that sentiment? :))
There is also a journalist writing about drug dealers moving out of his street being replaced by professionals which signified that his unremarkable street was gaining in status and that these professionals were going to sell at huge profit to Russians and Bankers. But why should they want to live on my street? You can't even get drugs any more. This article is rubbish and at the end he uses these reasons as an excuse to explain that the housing market is going to go pop!!!. Where do they dig up these so called business commentary's from?
Indeed, unfortunately the referendum is going to bring much volatility to the sector for a variety of reasons. The biggest concern, and perhaps the main reason for the sector sell off today, is the plummeting pound. The fears are that with the raft of high profile political figures joining the out campaign, this could increase the possibility of an out vote materializing thereby leading to further depreciation of the £ sterling. This would cause Mark Carney to talk, and maybe even act upon, raising interest rates much sooner than the market currently anticipates in an attempt to support the £. Obviously this would be bad for house builders. Even so, I still feel the sector offers significant value and fears over weakening margins and potential recessions seem overblown!
all builders down on brexit fear that's why we are the worsed sector today
Evening Dako, I'm assuming your post is aimed at the rating of sell rating published by Shore capital,looking back through previous brokers ratings,they have posted four ratings and on each occasion have declined to submit a New target SP,also on two of their posts they have entered the comment of Under review ( ref: HL brokers analysis). To my understanding in simple terms " We don't know!but we'll let you know later". As you commented they need to get in the real world. It will be interesting to see if they post or validate their reasons in depth why their recommendation is to sell
I sure some of these brokers are shorting house builders because they always bring negative comments out just before reporting week starts.. BVS produce a good set of results and fall nearly 4% with forward PE of less than 8. All builders have stated that land is plentiful and steady in price but these people know better making comments about this subject and bring all negative comments to bear on reduced margins. I just wonder if these people ever go into the real world or just seat at their little desk and write a comment to justify a large pay packet.
EPS more or less exactly as we calculated- 95.3p. Book value coming in at £7.14. Dividend as previously confirmed- 40p for the year. That puts us on some of THE best value trading metrics on the sector: P/E = 917/95 = 9.6 P/B = 917/714 = 1.28x Yield = 50/917 = 4.4% Given the growing volumes and the fact the 2015 saw a weak mix of private vs social completions, volume growth and ASP growth (through both market price appreciation and improved product mix) are very likely to result in some of the strongest EPS growth in the sector her over the coming 1-2 years which will further strengthen book value per share, lower P/E and result in a market leading dividend yield several years out.
Very positive results today - http://www.risersandfallers.com/2016/02/22/bovis-homes-reports-record-profits/ House builders are currently the only sector I have absolute confidence in.
Deutsche Bank on Tuesday reiterated Bovis Homes Group PLC’s analyst rating as ‘Buy’ with its price target of 1318 highlighting a potential increase of 52.72% from Bovis Homes Group PLC’s current price of 863.
Nice work. It almost seems as though you have been working on the final accounts! Nice uptick today. But SP could certainly do with a lift as they have been much worse than the rest of the sector over the past 6 months by my reckoning. Unless something improves soon I would have thought Ritchie could be under some pressure.
The calculations below take a conservative view, and it is entirely possible that ASP's could indeed increase more than my calculations anticipate given the strong weighting to the South East here. It is very easy to see therefore why Jefferies state this offers THE best value in the sector. Another nice piece from Reuters sums it up nicely: "On valuation grounds Bovis presents THE most compelling investment case in the sector, Jefferies writes, keeping "buy" rating" "Bovis trading at an 18.5 pct discount to peers on a forward P/E basis, Reuters data shows, despite 12.5 pct gain y/y" Imagine what would happen to the EPS, PE and thus dividend yield, ROCE and book value if the ASP's here shot up to the UK average 300k- which is Redrow's average ASP! So much room for growth here!
Until results. Lets use some of the hints in the trading update to estimate what the results might be! Last year revenue was 809m. I calculate from the trading update that volumes increased by 3934/3635 = 8.2%. Next up I calculate that the average house price sold increased by 231/216.6 = 6.6%. We can therefore calculate that the revenue likely to be reported by Bovis will be c. (809m* 1.066)*1.082 = 933m. They also state that the operating margin has increased to "Over 17%". Let's take the pessimistic view that it increases to 17.1%. That will leave us with operating profit of 0.171* 933mn = c. £160mn. Making a simplistic assumption that the tax rate is 20%, that yields net profit of 160*0.8 = 128mn. Lets divide that through by the number of share in issue of c. 134m. That yields us EPS of 128/134 = 95p. You will note my estimated calculation is nearly identical to broker forecasts which vary between 94p-97p. Interestingly I can also estimate the book value of the share. To do this I take the operating profit we calculated of 160mn. Next I divide through by the ROCE, which is stated in the trading update will exceed 18%. Lets take the worst case scenario of 18%. 160/0.18 = 889. That gives us a rough estimate of the capital employed by the business. Dividing through by the no of shares in issue gives us 889/134 = 6.63 which is a book value of 663p yielding a price to book multiple of 835/663 = 1.25x! My calculations above ignore some more intricate financial details, but I have also taken the lower end of the reported figures to take a conservative view and therefore it is entirely possible that Ritchie could be leaving some further upside in the figures (wise to). On my calculations that would place Bovis trading on a PE of 835/95 = 8.78 and a price to book of 1.25x, with a dividend yield approaching 5%. It is also interesting to note that the average selling price for the 2015 financial year is only £231k! That is extremely low for a business that concentrates in the more expensive South East. Average home prices have now risen to £300k and the £231k above reflects the fact that the 2015 period was more heavily weighted to lower value social completions. Lets anticipate what 2016 may bring. It is entirely possible that with the much higher number of private completions anticipated in 2016 ASP's could push ASP's much nearer to the £300k uk average. We will need to keep an eye out on trading updates to see how this figure develops. Lets assume though that the ASP's don't rise anywhere near too 300k, and just rise to 260k which is still cheap for the South East. That is an ASP growth of 260/231 = 12.5%- very reasonable given the circumstances. Lets also assume volumes rise by 8% as they have previously done so. Revenue would then grow to (933 * 1.125)*1.08 = 1134k. Lets assume the operating margin only edges up to 17.5% yielding operating profit of 198k. EPS = 198k*0.8/134 = 118p. P/E = 835/118
"On valuation grounds Bovis presents THE most compelling investment case in the sector, Jefferies writes, keeping "buy" rating"
M&G investments sold a steak that took them below the 5% level just 2 days ago. Today we get an RNS stating that they have purchased a load of Bovis taking them back over the 5% level! Very strange trade considering M&G Investments normally invest long term, although their trade over a couple of days did net them a profit.
Excellent post and thanks for the corrections (Steve Morgan as Chairman) that's what happens when you don't check the details! I will add Crest to my watch list. The reason I originally left them off my list was that I thought it was a group of companies that were merged together about 5 years ago, which could lead to rivalries/jealousy and would need a complete management/Hq reorganization, disrupting their progress in the short term. I have no doubt tw will create a new 5 year plan, but I agree with you tw and bdev are probably too big to be able to adjust to the changing conditions in the market. I think they still have a great future. bwy has been my most successful coy with over 60% return. Bol
I bought Bovis because it is unloved, and if you believe in the strategy the worst in sector ROCE should rocket over the next few years which will pull up the share price and potentially lead to sector leading shareholder returns as Bovis plays catchup. The market wants to see evidence of progress in this department, and accordingly at the moment it is punishing Ritchie for his appalling leadership. Personally I'd like to see him out, but even if he doesn't go things will get better as volumes increase and higher margin ed & valued plots work their way into the figures. Steve Morgan of Redrow is indeed an excellent Chairman (John Tutte is actually the CEO) and part of the reason I invested there too. Crest and Redrow both have clear growth strategies which will drive up EPS over the coming years which is part of the attraction for me. Indeed, a look at Redrow's annual report reveals significant growth in EPS as part of their LTIP vesting criteria for diectors. I was previously invested in TW. and Bdev but they are not the place to be anymore. Take a look at TW. for instance, it has volume targets of 14k units which it is now almost at. Where is the growth going to come from after that?! Crest has recently been described as a company where you can have your cake (growth) and eat it (dividends). Crest offers growth and market leading dividends, higher than any other builder including TW over the next few years. Why would you want to invest in TW. when it doesn't offer the same growth prospects and a lower dividend?! Same goes for Bdev. Bellway is a cross between the two. Bovis, Crest and Redrow are the place to be IMO.
Figures look good as you say but bvs have consistently underperformed the other main builders over the last few years. This leads to the -ve sentiment which makes the numbers you quote look good. Dako and Josh. You both question the ability of Ritchie to lead this coy. You must admit these 2 points are fairly damning in terms of market sentiment. But Interims out late this month (27/02/15 last year) and mebbe they have got their act together. For me I need to see something +ve before I would invest in this coy. Josh, I see you also invest in rdw which is almost the opposite of bvs (huge sp growth last year). Their excellent ceo John Morgan has got the coy moving again and is a major shareholder having come out of retirement to take over the company he created. Have you looked at bdev, bwy and tw? Best of luck and look forward to seeing the results.
The low valuation on the NAV for Bovis is partly due to its appallingly low ROCE which is a measly 16%. This compares to Crests market leading ROCE of a staggering 26.8%. These metrics imply that Crest is using its assets 26.8/16 = an astonishing 67.5% more efficiently than Bovis. Bovis currently trades on a P/b of just c 1.3 as you rightly point out. Crest's current P/b is nearer 2.3x. 1.3*1.675 = c. 2.2x and thus when Bovis increases its ROCE nearer to that of Crest we can expect a similar rating. Until then it will lag. Another reason for the low P/b ratio of Bovis is to do with its recent significant strengthening of the landbank. Under IFRS this is booked at the lower of NRV or Cost. Having recently added significantly to the landbank alot of the landbank is held at nearer to NRV at Bovis than will be the case for Crest. If one forensically analysed the landbanks of both and reported an EPRA NAV figure (current market value of the landbank) this would further close the gap. The good thing is, we know the strategy to double volumes should send the ROCE rocketing, and if Ritchie has got what it takes to do this Bovis could qucikly close that 67.5% valuation gap on the P/b compared to Crest. Has he got what it takes? I don't like his management, but things can only improve and I think we should do very well here.
I am happy with my investment levels in Crest and Redrow, however, I have been topping up regarding Bovis when the SP goes into the 800's. Josh I agree with all your remarks and when one includes higher margin sites coming on stream this year plus higher volumes, prices and dividends 2016 could be a great year to be invested in this company. It was interesting to note that Crest made similar remarks about delays plus reduction of margins but this was cast aside with the higher volumes and profits. Perhaps Ritchie needs to sit down and read the trading reports of other companies to learn the art of masking the odd bad news but how to highlight the good. It still amazes me with the Net assets/SP of this company which is only c1.3 and decreasing when compared to other builders which are between 2 to 3. In fact Crest is c2.5.
Bovis looks THE most undervalued builder on every metric you look at. Forward P/E.. current P/B, forward P/B, PEG.. noticeably cheaper than every other builder and with a better yield than for instance Redrow to boot. The question now comes down to this; does Ritchie have what it take to deliver the growth strategy? The market clearly has doubts given his recent worse than expected results. Having said that I also topped up on the recent retrace (but mainly Redrow and Crest) and despite Ritchie's poor leadership and questionable recent form I think things can only get better in the 2016 financial year. The full year results in Feb are likely to be nothing special, but with the excuses of planning delays resulting in lower margin-ed and value units in the 2015 figures can only bode well for the 2016 interim's and finals. Although current market sentiment is against the stock, the long term fundamentals still scream buy. And the dividend yield at approaching 5% is attractive.
Brought more of these at 835, hopefully the bottom, if not buying more more later on as this companies SP is ridiculous with trading as it is.
Why sell when I don't have to? This will recover in time. Think you should go and play somewhere else and stop adding to the general hysteria...