Why Lloyds Banking Group plc & Bovis Homes Group plc Are Dealing Far Too Cheaply!

Royston Wild explains why Lloyds Banking Group plc (LON: LLOY) and Bovis Homes Group plc (LON: BVS) offer irresistible value for money.

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Today I am looking at two FTSE heavyweights offering terrific bang for one’s buck.

Housing giant heading higher

I am convinced that the trading environment for housebuilding plays like Bovis Homes (LSE: BVS) is set to remain supportive in 2016 and well beyond.

Pledges by successive governments to improve the building stock have fallen disastrously short, and with home values steadily stomping higher, the problem is worsening as homeowners keep their properties off the market in anticipation of further rises.

At the same time a backcloth of rising income levels, falling unemployment and favourable lending rates — not to mention assistance from the government’s ‘Help To Buy’ scheme — looks set to keep driving demand through the roof.

Property website Rightmove is certainly bullish over the medium-term outlook for the housing sector, advising this week that average transaction values are set to leap by £17,000 in 2016.

Rightmove advised that “although the average price of property coming to market is already up by a hefty 7.4% compared to a year ago, [we] forecast that prices will reach and breach new records next year.”

Such a backdrop naturally plays into the hands of Bovis Homes and its peers, and the Kent firm is expected to follow a 24% earnings improvement in 2015 with a 20% advance next year. Subsequently a P/E rating of 10 times for the current period — bang on the bargain basement watermark — falls to a meagre 8.4 times for 2016.

With profits and cash steadily swelling, Bovis Homes is also anticipated to ramp up last year’s dividend of 35p per share to 40p in 2015 and 46.5p for 2016. With the business consequently boasting yields of 4% for this year and 4.7% for 2016, I believe the housebuilder is hard to overlook at current prices.

A brilliant banking star

With the British economy expected to continue steadily expanding through to the end of the decade, I also expect shareholder returns at banking giant Lloyds (LSE: LLOY) to steam higher in the years ahead.

Don’t get me wrong: I wouldn’t consider Lloyds to be an electric growth candidate for a second. Indeed, the result of significant asset sales, and a refocussing on its ‘safer’ retail operators, are expected to push earnings just 3% higher in 2015. And an 8% dip is anticipated for the following 12-month period.

But for those seeking a more stable banking stock Lloyds could be just the ticket. The bank doesn’t rely on emerging markets to drive growth like Standard Chartered, HSBC or Santander, nor is it suffering from the investment banking-related volatility seen over at Barclays.

And with the business sporting a P/E rating of just 8.6 times for 2015 and 9.7 times for next year, I believe Lloyds is a snip for those seeking growth at great prices.

But the good news does not stop there — thanks to Lloyds’ steadily-improving capital pile, the bank is expected to fork out a dividend of 2.4p per share in 2015, yielding a decent-if-undramatic 3.3%. However, this reading leaps to 5.1% for next year amid expectations of a 3.7p payout. Like Bovis Homes, I reckon Lloyds is a brilliant share selection for both growth and income seekers.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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