The Property Market Bounces Back

Two of Britain's biggest housebuilders reported half-year results this week, and both are seeing a turnaround in the housing market.

Bovis

Bovis released its half-year report on Monday, and although the depressed housing market led to a pre-tax loss of £8.6m (including exceptionals), compared to a profit of £9.5m for the first half of 20008, the company was upbeat about the future.

Turnover for the six months dropped to £122.6m, from £149.3m in the same period last year, which is not as big a fall as some had expected. Mortgage approvals, though still more than 50% down from the heady levels of 2007, have apparently been growing for six consecutive months, with selling prices rising for the past three months.

Debt and cash flow

The key issues on the minds of investors in these hard times had to be debt and cash flow, both of which could be killers in a downturn, and the picture there looked pretty impressive. At 31 December 2008, the company's net debt before issues costs stood at a heady £108m, but thanks to a net cash inflow of £94m, that has been reduced to just £14m at the end of June, and the management believes it is in a position to finish the year in a net cash position.

Re-entering the land market

That will depend on any new investments in land that the company might make. Land prices have been severely impacted by the falling demand over the past year and more, but Bovis believes that the market is stabilising, and is ready to start buying new land again. In fact, the search for new land investment has already started, and the first new acquisitions are expected in the second half of this year.

From an investment point of view, many of the fundamentals don't make much sense right now (P/E, for example, is meaningless in a crunch year or when a company records a loss), and future prospects are hard to quantify. But investors seem to like the look of the company at the moment, having pushed the share price up from a little over 350p to today's 558p in less than two months.

Persimmon

On Tuesday it was the turn of Persimmon to report, and the company agreed with Bovis that the housing market, though depressed after months of falling prices, is stabilizing.

Persimmon actually managed to record a pre-tax profit for the first six months of 2009, of £9.8m, down from £36.9m for the same period of 2008. That profit, though, was due in part, to an upward revaluation of some of its assets -- without that, the company would have recorded a loss of £18m. Persimmon suffered a larger fall in total sales revenues, in percentage terms, than Bovis, recording a total turnover for the half of £612m -- down from its previous £998m.

Net borrowing down

Net borrowings were reduced further than expected (if nowhere near as impressively as Bovis's), standing at £494m at 30th June. That's a high level of debt, but it's a long way from the eye-watering £905m debt figure from the same time last year. Further reduction is now planned, with year-end debt expected to come in around the £400m mark, and that is more than adequately covered by the group's £1b banking facilities.

Again, many of Persimmon's investment fundamentals don't tell us much right now, so it is hard to quantify the current value of its shares. But again, the share price has seen a good recovery over the past couple of months, from 350p at the beginning of June to 510p at the time of writing.

Time to buy the shares?

Are either of these good value shares? Although both companies do look like they're over the worst, they're not out of the woods yet, and I really couldn't put a value on them myself. If this week's results do suggest a recovery in the market, I can't help feeling a lot of that expectation is already factored into today's share prices -- and any analysts' forecasts out there, for the full year and for next, can surely be little more than 'finger in the air' guesswork at this stage.

More from Alan Oscroft:

• The Biggest Are The Best
• Retailers With Upside
• No End To The Bonus Culture