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Housebuilder Bovis H1 profit down, market steadies

Source: Reuters - Tue 25th Aug 2009

Housebuilder Bovis Homes posted a slump in underlying pretax profit but confirmed a growing trend of stabilisation in the UK housing market, pushing its shares to a near 18-month high.

The housebuilder said it made good progress in the first half, boosted by its private sales rate, lower overhead costs and reduced debt, leaving it well positioned to invest in land.

"The housing market has shown signs of stabilisation during the first half of 2009, with external house price indices indicating that the rate of price decline has lessened over this period and the number of mortgage approvals for home purchase has increased, albeit from a low base" said the company.

Mortgage approvals rose for a sixth consecutive month to 53,400 in July from 50,200 in June according to figures from the Bank of England.

UK peers Bellway and Taylor Wimpey both posted positive trading updates earlier this month, supporting data that there is growing stability in the UK housing market.

Bovis, one of Britain's smaller housebuilders by market value, reported a pretax profit before exceptional items of 1.2 million pounds in the six months to end-June, ahead of expectations, compared with 11.7 million in the same period the previous year.

But the company reported writedowns of 8.9 million pounds, which it had flagged in a trading update in July, helping push the company into the red with a pretax loss of 8.6 million.

Shares in Bovis were up 2.42 percent to 550.5 pence at 0849 GMT, after climbing to a high of 557 pence, levels last reached in April 2008. 


Bovis reported a 92 percent increase in the volume of private home reservation and said it generated 94 million pounds in cash inflow in the first half, lowering its net debt to 14 million pounds at the end of June.

The builder said this will allow it to make investments in the land market and it anticipates greater opportunities in the second half of the year as the number of distressed sellers rises.

"Bovis is now very well-placed to ride out any further weakness in UK housing" said Imran Akram at Collins Stewart.

But despite signs of stabilisation, the company said margins are not expected to improve in the second half, staying in line with the first half at 5.9 percent, reflecting the impact of falling average sales prices.

"It's not so much a market recovery; we've exploited the opportunities" Chief Executive David Ritchie told Reuters.

The builder is cautious on pricing in the short-term "given the continuing challenges seen both in terms of mortgage availability and in terms of the approach taken by surveyors in arriving at mortgage valuations".

Ritchie added that the housebuilder's capital structure is under constant review but refused to comment on whether it would raise equity in the near-term. Barratt Developments is expected to announce a rights issue when it posts its results in September.

The largest UK housebuilder by market value, Persimmon, will report its results on Tuesday.

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