Well that was a surprise.
When Greg Fitzgerald joined Bovis he essentially had only 1 strategic goal. Stop doing stupid stuff.
The fact that the plan was pretty simple and Mr Fitzgerald had a history of delivering was possibly evidenced by the number of experienced investors who followed him in to Bovis.
What was also apparent was that once you stop doing stupid stuff a refocused builder with strong balance sheet management can be highly lucrative. Persimmon being a great example.
What has been surprising is not that the plan has been working but the speed with which it has been working. Even management have described the situation as “ahead of expectations”. Either some of the issues at Bovis were not as deep as some felt or the changes have really been supported by the key staff. Who are often aware when stupid stuff is taking priority.
Turnover YoY increased 4% from £1,512m to £1,580m
But with a margin increase from 18.1% to 20.9% profits went up 41% from £42.7m to £60.2m
A dividend of 19p was declared (up 27%) and a special dividend of 45p will be paid at the same time.
The company has set itself clear targets of 4,000 completions PA. A gross margin of 23.5% and a 5% admin expense and looks to be on the way to delivering on these metrics. Which will of course deliver greater profitability going forward.
The company is also, with the special dividend, well on its way to returning £180m to shareholders from managing the balance sheet better. As with Persimmon one might hope for further returns well beyond the initial estimates.
At a Mkt Cap of £1.5bn Bovis is no minnow and already trades at 1.4 times NTAV. But Persimmon trades at 2.4 times NTAV and it looks very much to me as though Bovis is going down the Persimmon route. There is some level of cyclicality in the business and Brexit may well have an effect.
With an EPV valuation of £1.3bn Bovis will need to deliver on the growth it is displaying throughout the year and on its metrics but absent a dramatic change in the market and recognising Bovis has some initiatives of its own beyond just copying Persimmon I believe that the shares have decent upside potential.