Bovis doubles its half year profits
But the housebuilder's CEO cautions the government about amending its housing policy
By CFOWorld staff | CFO UK | Published 13:06, 20 August 12
Bovis Homes Group on Monday reported a doubling of its half-year, pre-tax profit and a 27 percent revenue rise but the chief executive voiced concerns over the government’s plan to amend its housing policy.
The company, whose revenue rose 27 percent to £170.3 million, said the average sale price over the period rose to £164,000 from £163,400 and that it expects its average sale price for 2012 to be 6 percent higher than that achieved in 2011.
Pre-tax profit for the six months through June jumped to £16.2 million from £8.1 million in the same period in 2011.
But a proposal to boost the supply of new homes by allowing builders to develop fewer "affordable" homes drew concern from Bovis CEO David Ritchie, who said the change may fall foul of limited mortgage finance for buyers of more expensive properties.
The construction of new homes is lagging well below rising demand as the population surges, leading to pressure to find ways of boosting supply. A review of the housing market will reportedly urge the government this week to reduce the proportion of affordable homes required in housing developments in a bid to encourage construction.
But Bovis said such a proposal may not be effective, even if it makes individual properties more profitable.
"Being able to switch from social to private could increase the value generation from each of those houses, but it may take longer for us to develop through the site," Ritchie told reporters on Monday.
"If that was to come to fruition as a policy, one of the concerns would be, how are the banks going to support an increased level of private development?" Richie said. "In the short term it could potentially be difficult ... to see volumes growing."
UK housebuilders are required by law to set aside a proportion of their schemes to be sold as affordable, cheaper homes. But a review to be published this week by the chairman of venture capital group 3i will suggest this stipulation is relaxed, according to a report in the Financial Times.
Bovis and its rivals have enjoyed strong demand so far despite the UK's tough economic outlook, thanks to a shortage of available new homes and government efforts to spur the market.
Home buyers, however, have been hampered by lofty deposit requirements and stringent lending conditions, as banks seek to repair their balance sheets in the aftermath of the financial crisis.
"We need to see some fundamental details as to how the government are going to encourage banks to lend to an increased number of private purchasers," Richie said.
The company's profitability has also been boosted by a strategy to buy up development plots whose value had been depressed in the financial crisis, along with an increase in the number of its sales outlets and its focus on building in regions where house prices have stayed strong.
The housebuilder doubled its interim dividend to 3 pence per share and said it expected continued strong growth for the rest of the year.
Bovis shares were up 2.4 percent at 505 pence by 11:16 a.m., valuing the company at £660.7 million. The stock rose as high as 511.6p, its highest since March.
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