Housebuilder looks to land bargains

The housebuilder said its targets include sites in Yorkshire, where it sees selective opportunities to grow its output "without relying on a resurgence in the housing market".

Bovis expects the market to climb slowly from the deepest housing slump in decades, but despite this said it is "strongly placed" to expand.

The housebuilder also unveiled an 11.6m writeback on the value of its land portfolio as the tumbling values of the past two years gradually turn.

The writeback offset an 8.9m provision in the first half of 2009. Larger York-based peer Persimmon did a 75m writeback last week, also taking it back into

the black.

Strong cash generation and a 59m placing in September gave Bovis 112m cash at the end of 2009 – funds it intends to plough into buying new land rather than resuming paying a dividend.

"We believe that as a business we can step forward without relying on a market recovery," said chief executive David Ritchie.

In common with other housebuilders, Bovis has seen house prices recover more strongly in the South, with pricing slower to recover in the North and Yorkshire.

But Mr Ritchie said despite this, Bovis is "not precluding the North" from its search for new land.

"M62 corridor down are areas of search for us," said Mr Ritchie. "We have pin-pointed areas in Yorkshire which we would see as good areas.

"We see Leeds – outside the city centre – as being a good active market where if we can buy land at the right price we can sell houses and make money."

The Kent-based group reported a pre-tax profit of 4.8m in 2009, compared with a 78.7m loss a year earlier. It resumed buying land, acquiring four sites and agreeing terms in another 15 by the end of the year.

It sold 1,803 homes, broadly level on a year earlier. However, it built only 911 homes during the year, shifting old stock instead of committing to new developments. This year Bovis expects production levels will broadly match home sales.

During 2009 it had about 85 sales outlets open on average. However, this is likely to fall to around 70 outlets this year.

The housebuilder's land bank stood at 12,042 plots at the end of the year, representing six-and-a-half years' supply, but down 11 per cent on a year earlier.

This has led to concern from analysts about the group's short-term outlook on volumes.

"The challenge ahead for the group is to use its balance sheet to acquire residential land and thus grow its sales outlet count," admitted Bovis.

After cutting hundreds of jobs, the group said it is back in recruiting mode, taking on commercial, technical and office staff, as well as hiring more subcontractors. By the summer it expects to have more than 500 employees, compared to 470 at the year end.

But while its own view is one

of growth, the group is not expecting significant market recovery this year, saying house prices are unlikely to improve significantly.

Bovis saw average sales prices improve three per cent to 154,600 on the back of more private and less social housing.

"I think we have seen the majority of the pain," said Mr Ritchie. "Cautiously optimistic is our view on life.

"We have got some fantastic affordability statistics out there. The difficulty is we have is mortgage availability for people who do not have the liquidity.

"This is a liquidity issue but not an affordability issue."

First-time buyers, seen as vital to the property market's recovery, are still being deterred by the need for large deposits.

Despite this, Bovis said it has made a "solid start" to reservations this year, and sales so far this year are up 26 per cent on a year ago.

Analysts have speculated Bovis could be an acquisition target because of its large land bank and debt-free balance sheet, with Persimmon a potential suitor. The company declined to comment.

ANALYSTS SEE CAUSE FOR CONCERN

Analysts said Bovis's shrinking number of outlets is a cause for concern. The group expects the average number to fall from 85 to 70 this year, and is addressing this with land purchases.

"Despite what looks like a fairly upbeat results statement for 2009 ... we expect to reduce our 2010 estimates by around 20 per cent due to lower price and margin assumptions and, not for the first time, a downgrade to volumes," said Alastair Stewart at brokerage Investec.

But Imran Akram at Collins Stewart said Bovis remains attractive: "With 12,000 landbank units and 16,000 strategic units, the group remains very well placed to continue to pull strategic units into the consented landbank as a source of attractively-priced land."

Les Kent at brokerage FinnCap said Bovis could be an acquisition target. "We remain buyers of the shares for recovery and to own one of the best land banks in the sector because we do not think that sector consolidation is over," he said.