With a controversial Brexit deal hitting the headlines, Thursday might not have been the best day for house-builder Bovis Homes Group (LSE: BVS) to release a trading update.
Shares in the FTSE 250 firm were down by 9% at the time of writing, despite the company confirming expectations for “a record year of profits” in 2018.
Sales are on track
There certainly was some good news. The firm says that it’s sold all of the houses it plans to complete in 2018, at prices that are “in line with our expectations.” Sales per outlet are unchanged from last year, averaging 0.51 per week — so there’s no obvious sign of a slowdown.
Another piece of good news is that the government has extended the Help to Buy scheme by two years to March 2023. Although the scheme will be tapered from March 2021, Bovis says it doesn’t expect any reduction in the use of the scheme in the meantime.
This worries me
In today’s update, the firm said that 15% of reservations during the second half have included a part exchange. The firm says Brexit worries are putting off “discretionary buyers” — presumably this means people who already own a house and don’t need to move.
In my view, this is a concern. Part-exchange deals can tie up a lot of company cash. Only 8% of houses were sold with a part exchange during the first half of the year. The sudden increase in H2 suggests to me that this may have been the only way the firm could hit its sales targets for 2018.
Buy, sell or hold?
As a shareholder, I intend to sit tight for now. I suspect that the business is in reasonable health, if you’re prepared to ignore Brexit jitters.
After Thursday’s sell-off, Bovis stock offers a forecast dividend yield of 10.8%, and trades at just 1.2 times its book value. I can see this as a Brexit recovery buy.
Buy this safe haven?
Mining stocks aren’t generally seen as safe choices. But gold tends to be in demand during times of uncertainty. We saw this on Thursday when shares of Egypt-based gold miner Centamin (LSE: CEY) gained 4%, while domestic stocks were falling.
Centamin has had its share of problems this year. Production guidance has been cut more than once. Indeed, the firm’s recent third-quarter update included news of another cut.
Despite this, the company’s core attractions remain intact. This FTSE 250 firm has fairly low costs, net cash of $292m, and a modest valuation.
An income buy?
Analysts expect this miner’s earnings to rise by 24% to $0.10 per share in 2019, putting the stock on a modest forecast P/E of 12.5. As in previous years, I’d expect these earnings to be closely matched by free cash flow, supporting further dividend growth.
At current levels, Centamin’s cash balance covers around 20% of its share price. This should provide good support for the dividend, which is expected to yield 4.5% this year, and 6% in 2019.
Owning shares in a profitable gold miner can be a good way to diversify your portfolio. I’d rate these shares as a buy at under 100p.
