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Bovis – Signs of Trouble Ahead for Housebuilders

The blizzards now raging on the Athenian coast will no doubt keep the weather pundits busy for a day or so and the most popular explanation from the chattering clashes is likely to be that global warming is responsible, which leads us on to the warning signs of storms ahead for the UK’s house builders.

Bovis Homes is the latest to set alarm bells ringing with a trading update for the year to the end of December which when compared to previous updates in the summer and autumn, clearly illustrates the beginnings of a serious decline in the house builders fortunes. Indeed when one looks back only six months, it is obvious that management was oblivious to what was happening in its marketplace.

Firstly Bovis has had to admit the unthinkable, namely that the delivery of new homes for the current year will be lower than previously anticipated, one of the major factors in this being delays in build production in December. What ?, do I hear you gasp, Bovis management is in such a mess that its years delivery statistics  may be knocked sideways by delays in just the last month of that year.

Never mind says Bovis, we are protected against this by the price increases we have imposed on buyers during the year and which, with only 3 days to go, have averaged 10%. Very good that until you look at the figures produced at the time of the interim results at the end of June and then at later dates. Price increases in those heady days then averaged 15% i.e. 50% less than they have turned out to be at the end of the year. It does not required a degree in statistics to realise that the second half’s price increases must have fallen steeply to bring the years average down to 10%.

Closer inspection reveals other gems which indicate a continuous, worsening situation. Operating profit margins for the full year are expected to fall. Site closures for the year now exceed new site openings – which will help to make the company more profitable and which in turn raises the question as to why these sites were bought in the first place. Obviously it was because management mistakenly believed they could develop them profitably.

As recently as 10th November Bovis was announcing that volume growth was still expected for the full year, which does not compare well with its position in December that the full year would produce a fall in volume growth. Were there no signs of that six weeks ago. Have things deteriorated so badly in such a short time.

Bovis is not alone. Share price falls in the UK housebuilders over the last months indicated that the market had already cottoned onto the truth. It is a pity that directors and management remained blind to the problems. All they needed to do was to speak to the big estate agents but no doubt that would have been beneath their dignity.

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