Bovis Homes to beat profit forecasts

Bovis Homes has restored its dividend after delivering a profit surprise, but warned that the housing market continues to suffer from low mortgage availability . Like other housebuilders, the company is buying more land in the south and building bigger homes to benefit from higher prices – houses with three to four bedrooms rather than two to three. Some 80% of plots bought last year are in the south of England. "The sector is building fewer apartments and turning to houses," said David Ritchie, the chief executive. Bovis expects to beat City forecasts by posting a pre-tax profit of £16.3m for 2010. It completed 1,901 homes last year, up 5% from 2009, including 1,592 private homes and 309 social homes. The average sales price rose 4% to £160,700. Coupled with build-cost savings, this increased operating profit margins to at least 7% from 6.2% in 2009. At the height of the housing boom in 2006 and 2007, Bovis enjoyed margins of 27%, compared with an industry average of 18%. Those heady days are unlikely to return any time soon, but Ritchie is hopeful of rebuilding margins "into the teens". Along with its rivals, Bovis warned of "subdued" trading this year. The problem is that less than 50,000 mortgages are approved by banks every month, half the number seen in 2007. "This is a major constraint on the market and will not cure itself overnight," explained Ritchie. To help first-time buyers struggling to raise the large deposits required by many lenders, Bovis recently teamed up with Barclays to offer a mortgage that only requires a 10% deposit, called 'The Perfect 10'. Bovis is also in talks with Hitachi Capital about the product launched by the UK arm of the Japanese firm with rival Barratt this week. It offers loans of up to £50,000 to looking to help their children raise a deposit. Bovis decided to start paying a dividend to shareholders again this year, and will determine the level in March. "We're quite confident that we can grow the business in a flat market," said Ritchie. The company's shares rose in early trading, climbing 7.7p, or 1.8%, to 432.9p. Arbuthnot raised its price target to 468p from 420p.