Bovis sees 'fragile' market as it looks to south

The builder is focusing its acquisition efforts on the south where it expects the recovery to arrive first, rather than buying in Yorkshire.

Bovis kicked off a week of reporting for the construction sector by delivering pre-tax profits of 3.5m in the first six months of the year compared with an 8.6m loss a year earlier, and said it will resume dividend payouts at the end of the year unless the market deteriorates.

"Our core assumption is we're going to see a period of stability – some might call that stagnation," said Bovis chief executive David Ritchie.

"We've got ongoing challenges in the mortgage market – we're currently seeing mortgage availability is about half the 2007 run rate. I cannot see that increasing substantially over the next six to 12 months.

"It feels like it's going to mark time. If that's the case, we will have a good opportunity to use our balance sheet and invest in good quality land."

Bovis said the housing market has been "fragile" since the new Government's austerity Budget. Both the Royal Institution of Chartered Surveyors and Nationwide reported falls in selling prices last month. But despite its caution, Mr Ritchie said the group is "not looking at a double dip scenario".

Bovis bought 1,874 plots of land with planning permission in the first half for 107m, which it expects to return gross profits of 94m.

That increased its consented land bank to 13,113 plots, which Bovis said could convert to gross profits of 412m.

It has a total of 17,270 potential plots and has agreed terms on another 3,000 plots, many of which it hopes to add by the end of the year.

Mr Ritchie said Bovis is focusing its land acquisition strategy on the south because the market remains strongest there. It ended the period with net cash of 79m.

"Eighty per cent of the plots that we've added are southern based and that's inevitably where we see the most likely recovery starting," he said.

"From our point of view we see an ongoing risk of house price falls in areas of Yorkshire."

Despite this, he said Yorkshire remains a key area for the group, where it has five per cent of its land bank and work ongoing.

Sites include a big development in Selby, a project outside Barnsley, plus new homes in Hull.

The group completed the sale of 803 units in the first half at an average selling price of 163,000. Assuming the market remains flat, it expects to hit its target of 1,600 completions for the year.

By investing at the low point in the market, Bovis hopes to generate attractive returns when it eventually picks up, although claims it is not reliant on a housing market recovery.

"The group has the ability to increase its output capacity and profitability... without reliance on a general housing market recovery," said Mr Ritchie.

York-based rival Persimmon will today report on its first half, followed by Sheffield insulation giant SIG and Thirsk structural steel firm Severfield-Rowen tomorrow.

Sheffield construction firm Henry Boot then posts first half numbers on Thursday, with Huddersfield paving specialist Marshalls reporting on Friday.

Rental venture to sell properties

Bovis has set up an "innovative" rental joint venture to shift an overhang of apartments, mainly in the north.

The group set up a 50/50 joint venture with a private investor, allowing it to offload 215 homes it has struggled to sell, generating revenues of 25.7m.

The portfolio of homes, which spans the M62 corridor, includes apartments in Hull. The homes will be rented in the private market, before being sold when the market picks up.

"In five years' time we would anticipate being able to sell them back into the market at a profit," said chief executive David Ritchie.

The apartments, which are mainly low-rise blocks, are currently 98 per cent let. Bovis invested 4m in the joint venture.