Bovis Homes has confirmed its rejection of the merger proposal from Galliford Try. With Redrow, having also dropped out, both suitors who had previously expressed an interest in Bovis have now withdrawn their proposals.
Bovis has also confirmed the appointment of Greg Fitzgerald as its new CEO. Mr Fitzgerald, who starts on 18 April, has a long background in the housing sector, and had previously served as CEO of Galliford Try until leaving the company in 2014.
The shares were little moved on the news.
2016 results saw profits fall and completions lower than previously anticipated. Many of the group's homes were delivered below the standards expected and £7m was set aside for customer redress. The results came shortly after David Ritchie stepped down after 8 years as CEO.
While Bovis has struggled in the months after the referendum, still grappling with its longer term problem of controlling build cost inflation, the rest of the sector is holding up well. Despite uncertainty over the UK's vote to leave the EU, support comes from several sources. The UK still faces a major housing shortage and government schemes such as Help to Buy continue to assist first-time buyers. In addition, the Bank of England's decision to cut interest rates back in August is helping to keep mortgages affordable.
Bovis' difficulties are symptomatic of internal rather than sector-wide issues. With the other builders increasingly exuding an air of confidence, and Bovis lacking direction, it was perhaps unsurprising that a couple of others saw the potential to merge and try to engineer an improvement. Both Redrow and Galliford Try tested the water, but both have backed away. Bovis said neither approach reflected the underlying value of its business.
On the same day that the group confirmed that merger talks will not be progressing, it also announced the appointment of a new CEO to lead the group forward. Greg Fitzgerald has an excellent reputation in the industry, so the board will certainly be pleased to have tempted him out of retirement. It will be interesting to see if he can get Bovis' house in order, and how quickly.
In the short term, he will need to prioritise righting previous wrongs, and improve both the build process and customer service levels. However, it's his longer-term outlook for both the group and the sector generally that will be of particular interest. After all, there are question marks hanging over how long the good times can last.
Bovis Homes featured in our recent article: UK housebuilders - good results and attractive dividends, but what next?
Full year trading update:
The group was unable to deliver the anticipated unit sales and customer service performance in the second half. With labour and material cost inflation continuing, and the deferral of 180 homes into next year, profit margins fell from 17.3% to 15.2%. Despite average sales prices rising 10% to £254,900 and completions nudging up to 3,977, profit before tax was £154.7m, down 3% on 2015.
The group suspended investment in new land around the time of the EU referendum, so has ended the year with 18,704 plots in its land bank, as opposed to 19,814 last year.
The group is to increase its focus on customer service, meaning that its rate of production and completion volumes for 2017 are to be 10 to 15% below 2016 levels. While the 2016 dividend is increased 13% to 45p per share, the group intends to hold the dividend flat in 2017.
Unless otherwise stated, all estimated figures, including prospective dividend yields, are taken from a consensus of analyst forecasts compiled by Thomson Reuters. These estimates should not be taken as a reliable indicator of future performance.
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