16th Jan 2014 10:03
LONDON (Alliance News) - Bovis Homes Group PLC Thursday became the latest listed housebuilder to report a continued sharp improvement in its performance, with Chief Executive David Ritchie saying its forward order book is in its position for many years.
The housebuilders were hit hard by the financial crisis and economic downturn, all but ceasing new building as they focused on paying down debt and awaiting the recovery. That recovery started last year and has gathered pace, with house price again increasing across the country.
In a trading update, Bovis said it expects to meet market expectations for a significant increase in 2013 pretax profit. It said legal completions were up 19% to 2,813, including a 26% increase in private homes, while its average sales price rose 14% to GBP195,100.
It said its operating profit margin had risen to nearly 15%, from 13.3% in 2012, and it expects its return on capital employed to be above 10%, up from 7.7% the previous year.
"Trading has continued to be robust in the latter months of 2013 and this momentum has been maintained into the opening weeks of 2014," the company said in its statement.
Its forward sales as of January 1 were 1,377 for 2014, almost double the 778 forward sales it had at the start of 2013.
Recent data has shown house prices continuing to rise across most of the country in recent months, causing some economists to warn there's a risk of a new house price bubble developing. The Bank of England says that isn't happening yet, but it will act if it suspects that price rises are moving too fast. Part of the reason for the rapid increase in prices is that there still aren't enough new homes being built to meet demand, particularly in areas like London and the southeast.
Taylor Wimpey and Barratt Developments have both reported strong trading updates this week, with both citing the government's mortgage financing scheme, Help to Buy, for part of the recovery because it is helping first-time buyers get on the housing ladder. The housebuilders have both said they expect the recovery to continue throughout 2014.
The first phase of the Help to Buy scheme in England started in April 2013, making buyers of newly built homes eligible for a 20% equity loan from the government on top of their 5% deposit. The second phase, which started in the Autumn, guarantees a portion of a buyer's mortgage.
Bovis didn't mention the Help to Buy scheme in its statement.
Bovis said it had added 3,737 plots to its consented land bank on 27 sites in 2013 and also contracted for about 2,800 plots on 12 sites at the end of the year which it expects to add to its consented land bank early in 2014. Its land bank stood at 14,638 plots with planning consent at the end of 2013, representing over five years of land supply at 2013 build volumes.
"With further increases in active sales outlets supported by ongoing assertive land buying, the Group is confident of its future prospects and ability to deliver further significant improvement in returns," CEO Ritchie said.
Jefferies analyst Anthony Codling said Bovis had made a flying start to the year, and he's forecasting that its pretax profit will rise 42% during 2014. He's also bullish on the company's shares because they're trading at a discount of about 26% to the average price-to-book ratio for the wider sector.
Bovis will release its full 2013 results February 24.
Bovis shares were up 0.1% at 841.70 pence Thursday morning.
By Steve McGrath; [email protected]; @stevemcgrath1
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