Bovis Homes Group (LSE: BVS) saw its share price collapse a shocking 22% in 2018. I’ve said time and again that the market is far too pessimistic over the profits outlook for the homebuilders. There’s plenty of evidence surrounding the health of the homes market that has instead reinforced my positive view of the builders, and two pieces of news in recent weeks underline why I think the future remains extremely bright for these construction stars.
Exhibit A
Brexit may be playing havoc with much of the construction industry, but concerns over the manner of European Union withdrawal hasn’t prompted Bovis and its peers to pull up the drawbridge. Latest data from the National House Building Council (NHBC) showed that 15,155 new homes were registered for construction in November, up 2% year-on-year and the second-highest figure for 2018.
And on a rolling quarterly basis, between September and November 43,745 new homes were registered to be built versus the comparable period in 2017, an annual increase of 7%.
Let’s make no bones about it: even if Britain embarks on a disorderly European exit in the next couple of months, and broad homebuyer confidence takes a whack in response, there are still unlikely to be enough homes to go around. And that’s why the builders feel confident enough to keep bumping up production.
Exhibit B
The failure of government to get on building was laid bare by a fresh report by the Center for Policy Studies which predicted that an average of 130,000 new properties per year will be built between 2010 and 2019, the lowest rate of new homes put up each year since the Second World War.
In the prior decade, some 147,000 homes were built on average each year, with 150,000 built annually in the 1990s, and the anticipated quantity of new-builds per year for the 2010s look set to be half of the level recorded in the 1960s and 1970s.
To put this in context, during the 1960s, approximately one new home was built in England for every 14 people over the decade. Rampant population growth, coupled with insufficient build rates mean that, since 2010, this ratio has stretched out to one new home for every 43 individuals.
Those 11% dividend yields
In this context it’s hardly surprising that the homebuilders continue to churn out positive trading releases in spite of the ongoing Brexit saga, the latest of which was put out by Taylor Wimpey just this week.
These construction corkers have proved their resilience in trying times since the 2016 Brexit referendum, a period that has seen average home value growth slow to a stutter. Indeed, the City still sees scope for Bovis for one to continue churning out decent profits growth for some time yet, and rises of 4% and 3% are predicted for 2019 and 2020 respectively.
The FTSE 250 firm has vowed to splash out special dividends through to the next decade and beyond, and with earnings expected to keep bounding higher, the number crunchers unsurprisingly expect it to make good on this promise. Consequently Bovis carries giant yields of 10.9% for this year and 11.1% for 2020.
I believe that Bovis has what it takes to continue generating solid profits growth and gigantic dividends long into the future. At current prices it boasts a forward P/E ratio of 8.8 times, and I reckon this makes it a steal.
