8th Jul 2014 07:14
LONDON (Alliance News) - Housebuilder Bovis Homes Group PLC Tuesday joined peers in reporting higher new house sales at higher average prices, confirming the continued strong recovery of the sector after several years in the doldrums in the wake of the financial crisis.
In a trading update, Bovis said legal completions in the first half of 2014 were 1,487, up from 963 in the first half of 2013, at an average selling price of GBP210,000, up from GBP188.500. It said the rise in selling prices was down to it selling more expensive, larger properties, as well as "modest" improvements in house prices.
It expects its operating margin for the first half to be at least 15% as a result, up from 11.1% in the first half of last year. Return on capital employed is expected to be about 13.2%, up from 7.7%.
"Bovis Homes has delivered its highest ever number of first half year legal completions, driven by the high quality investments made during the last few years. This is expected to lead to excellent first half results with a material improvement on last year," Chief Executive David Ritchie said in a statement.
The UK's listed housebuilders were hit hard by the financial crisis and resulting economic downturn, with house building coming to an almost complete standstill in 2009 as the companies focused on retaining cash and paying down debt. The recovery was slow, but has accelerated rapidly since the start of 2013. The recovery was helped by government initiatives to support mortgage lending and house buying, like the Help to Buy scheme which has substantial benefited Bovis Homes.
The recovery has reached a level this year that has given the Bank of England cause for concern. Mortgage lender Nationwide last week said UK house prices expanded at the fastest pace since 2005 in June. The central bank has moved to slow the rate of growth by asking mortgage lenders to limit the amount they will lend compared to a person's salary and to undertake even tougher stress tests to ensure a customer can repay the mortgage even if interest rates increase.
"With the extension of the Help to Buy shared equity scheme to 2020, the group will be able to help many first time buyers to take the first step on the housing ladder. While the mortgage approvals rate has slowed in the last few months, the mortgage market remains positive overall," Bovis Homes said in its statement.
"The group supports the actions taken by the Bank of England to encourage a sustainable housing market. A less volatile environment where house prices move more in line with inflation will present a good backdrop for the industry to increase output of new homes and sustain returns for shareholders over the long term," it added.
The company's outlook remains positive. Bovis' total reservations expected to complete this year stood at 3,297 homes at the end of June, up from 2,287 homes at the same stage in 2013. It did caution that sales growth is starting to moderate, but put that down to strong comparative figures from the year-earlier period.
"Trading continues to be robust, further increasing our confidence in delivering both strong volume growth for 2014 and an enhanced forward sales position for 2015," Ritchie said.
The housebuilder said it made a record investment in 4,597 plots with planning consent on 23 sites in the half. CEO Ritchie described the land market as "orderly".
"Looking further ahead we are confident that further improvements in key financial metrics can be delivered and that ongoing land investment will continue to strengthen the business and further enhance shareholder returns," he said.
Still, Bovis Homes shares were down 1.8% at 776 pence early Tuesday, one of the biggest declines on the FTSE 250.
By Steve McGrath; [email protected]; @SteveMcGrath1
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