Shares in housebuilder Bovis (LSE: BVS) have risen by around 3% today after it released an encouraging update. The company expects to deliver a strong result for 2015, with it increasing the number of homes it sold versus the prior year by 8%. And with those homes being sold at an average price of £231,000 rather than the £216,600 of the previous year, profitability for 2015 is set to be highly impressive.
Additionally, Bovis has been able to increase its operating margin to over 17%, which it believes will equate to a return on capital employed for the full year of 18%. That’s 180 basis points higher than in 2014 and with Bovis having 2,003 total reservations on its books, it begins 2016 with a very bright outlook.
Looking ahead, Bovis is expected to post a rise in its bottom line of 20% in the current year. Alongside a price-to-earnings (P/E) ratio of 9.7, this equates to a price-to-earnings growth (PEG) ratio of only 0.5. With Bovis being optimistic about the future of the UK housing market, now appears to be the perfect time to buy a slice of it for the long term.
Long road ahead
Also reporting upbeat results this week was Tesco (LSE: TSCO). Certainly, it’s still a very long way off being back to full health, but its update showed that it’s making encouraging progress towards its strategic goals. For example, UK like-for-like (LFL) sales rose by 1.3% in the six weeks to 9 January, as shoppers returned from the no-frills, discount operator space.
In fact, this trend of shoppers returning to Tesco looks set to continue because the company is giving shoppers what they want. It’s investing heavily in customer service and this could prove to be a key differentiator between itself and Aldi and Lidl. And with the UK economy continuing to improve and shoppers having higher disposable incomes in real terms, price may become less of a driver compared to convenience and quality – just as it was before the credit crunch.
With Tesco trading on a PEG ratio of 0.2, it offers strong growth prospects at a very reasonable price. And with dividends due to more-than-treble this year, it could become a sound income play over the medium term too.
Wait and see?
Meanwhile, consumer goods company PZ Cussons (LSE: PZC) continues to struggle in a challenging period for its key market, Nigeria. Certainly, Africa’s biggest economy has huge long-term growth potential and is set to benefit from the continuing increased wealth among its consumers. However in the near term, a low oil price plus political challenges are hurting its overall performance. At least partly because of this, PZ Cussons is expected to record a rise in earnings of just 3% in the current year.
For a stock that trades on a P/E ratio of 14.5, that appears to be rather low. As such, investors may wish to await a lower share price before buying a slice of the business. With PZ Cussons’ shares having declined by 25% in the last six months, a keener valuation may be just around the corner.
