Bovis Profit Climbs After U.K. Homebuilder’s Margins Widen

Bovis Homes Group Plc, the second-worst performing U.K. homebuilder stock in the past 12 months, said 2011 earnings rose after the company’s profit margin widened.

Net income climbed to 23.3 million pounds ($37 million) from 14 million pounds a year earlier, the Longfield, England-based company said in a statement today. The operating margin widened to 10 percent from 7.2 percent.

U.K. homebuilders are boosting profit margins by focusing more on houses and developing low-cost land. Bovis predicted a return on capital employed of at least 7 percent for this year,

“Bovis is trying to improve its return on capital invested by building more and opening smaller outlets,” Robin Hardy, an analyst at Peel Hunt LLP in London, said in a note to investors. “It may have the assets, but by being tied up on large sites with relatively slow asset turn, it cannot produce earnings at a high enough pace.”

Bovis rose 4.5 pence, 0.9 percent, to 510 pence at the 4:30 p.m. close in London, giving the company a market value 682 million pounds. The shares have gained 11 percent in the past 12 months, while the Bloomberg EMEA Home Builders Index has climbed about 20 percent.

Higher Prices

Analysts expected net income of 23.1 million pounds, the average of four estimates compiled by Bloomberg. The average selling price of Bovis’s homes rose by 5 percent to 180,100 pounds.

“There’s strong growth in our profit margins,” Chief Executive Officer David Ritchie said on a conference call today. “The operating margin, for the first time in a number of years, is back into double digits.”

The U.K.’s coalition government is trying to spur construction after homebuilding in England and Wales fell in 2010 to the lowest during peacetime since 1924. House prices held their value for a second month in February as buyers rushed to beat the end of a property-tax exemption, Hometrack Ltd. said today. Values are 1.4 percent lower than a year earlier, the London-based property research company said in a report.

Stamp Duty

A two-year property-tax exemption for first-time buyers purchasing a home for less than 250,000 pounds ends next month. Bovis said it will offer customers discounts so that the tax break is effectively extended for the foreseeable future, Ritchie said on the call.

The company completed 2,045 homes in 2011, an increase of 8 percent from a year earlier. Net private reservations have risen 41 percent in the first eight weeks of 2012 from the same period a year ago.

“What is still holding back activity is people’s inability to get hold of a 95 percent loan-to-value mortgage,” Ritchie said on the call.

Starting in the second quarter, those seeking a new home will be able to get a mortgage with a down payment of as little as 5 percent under a government-backed guarantee. Previously, new-home buyers have used the state’s FirstBuy Program, which helps people get cheaper mortgages with an interest-free loan from the developer and the government.

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