Bovis sees growing evidence of a North-South housing divide

HOUSEBUILDER Bovis Homes said it is selling twice as many homes in the South compared with the North and Midlands, as it reported an increase in half year revenues and profits.

The group said it is opening more sites in the South where the market remains more robust, echoing comments from other builders and property groups about a growing North-South divide.

Bovis, which builds houses as far North as the M62 motorway, sold 801 homes in the first six months of the year, roughly flat on a year earlier.

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Its average sales price increased by 3.2 per cent to £163,400, with costs falling significantly.

The group’s Southern outlets delivered an average sales rate of 0.63 sales per week in the first 34 weeks of the year. By contrast, its Midlands and Northern sites had an average rate of 0.31 sales per week.

“In terms of the facts of the market I’m selling twice as many in the South as I’m in the Midlands and the North, and therefore if I’m going to put (money) into a new site it’s (likely) I’m going to put it into the South, rather than the North,” said chief executive David Ritchie.

“When you get the right location in the North it still works. We’ve a long-standing history in the North, but it’s more difficult for us.”

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The group’s strategic land holdings edged up to 17,703 potential plots, from 17,325 at the end of 2010.

Just 901 of these plots are in the North, flat on six months earlier. However, Southern plots increased to 9,677 from 9,299 a year earlier.

Its land acquisitions were also focused on the South and 71 per cent of the group’s land bank of 14,470 plots is now in the South.

Bovis’s comments will fuel concerns about the UK’s housing imbalance, a disparity the Yorkshire Post is trying to tackle through its Fair Deal for Yorkshire campaign.

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Bovis had 68 active sites in the first six months, up from 64 a year earlier. Since July, it has opened eight more sites, including one in Selby, and has another six to open in the rest of the year.

The housebuilder more than doubled pre-tax profits to £8.1m from £3.5m a year earlier. Revenues were up 15.6 per cent at £133.6m.

The group is also increasing its proportion of larger homes, in line with a shift away from apartments among buyers.

Some 51 per cent of its home sales were three-bedroom houses in the first six months of 2011, compared with 35 per cent a year earlier.

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Bovis said it has also pushed through a significant year-on-year decrease in construction costs, paying lower labour rates to subcontractors.

These factors helped increase its operating margin to 7.5 per cent from 4.2 per cent a year earlier.

The group resumed its interim dividend at 1.5p per share and said it is targeting an operating margin of at least 10 per cent in 2012.

Bovis’s shares climbed 18.5p to 369.5p, a 5.3 per cent increase.

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Mr Ritchie said he sees the housing market remaining roughly level for the next 12 months.

“I would take a bet on activity levels and pricing being almost where they are now,” he said. “It seems we’re getting the sort of products right and the locations right.”

He added the group has seen a 69 per cent increase in visitor numbers during the past six weeks.

Mr Ritchie said: “We’re building in line with sales demand. If demand increases, we will build more.

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“But we can only build with customers being confident to buy.”

About 20 per cent of Bovis’s volume was from shared equity sales – where the group pays for a proportion of the property, to ease the burden on first-time buyers.

However, Mr Ritchie said he hopes over time to unwind this position.

“We’ve not set out to be a lender as well.

“One of the stepping stones to getting there is encouraging the banks to lend at higher loan-to-value.”

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Analysts at Shore Capital maintained a ‘hold’ recommendation.

They said: “While we recognise the importance of a strong balance sheet (Bovis has net cash of circa £46m), we believe the company’s return on capital will continue to be constrained by its long land bank and modest growth in unit sales.”

However, Richard Curr, head of dealing at Prime Markets, issued a buy recommendation and said its resumption of dividends “sends out a strong message”.

He said: “With markets seemingly looking set for a recovery in September, the focus will be on the stocks most likely to deliver a fast and sustainable recovery, and in this regard Bovis looks exceptionally well qualified.

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“The improvement in profits and revenues, coupled with the increase in reservations and sales outlets is a great achievement in the current climate, but it is the reintroduction of the dividend that sends out a clear message to shareholders and UK housing market bulls.”

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