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Bovis runs rule over merger candidates

BOVIS HOMES, the housebuilder spun off from transport group P&O a year ago, is considering a merger with a listed rival in a bid to expand its presence in the North of England.

The chief executive, Malcolm Harris, yesterday said the company had held informal talks with several medium-sized housebuilders in the past year but had still not find the perfect partner. "We have spent the last year talking to a number of companies, but we will only merge if it added value for shareholders in the long term."

Mr Harris said Bovis wanted an agreed merger and was not prepared to mount a hostile bid. If a friendly link-up did not materialise, Bovis could spend its pounds 100m cash pile to buy an unquoted regional housebuilder.

The ideal target would have operations in the Midlands, the North and the South-west to complement Bovis's strength in the South, the chief executive said.

The company's hand in any merger talks was strengthened by yesterday's good maiden results. Bovis posted a 21 per cent rise in pre-tax profits to pounds 45m despite a 10 per cent fall in completions to 2,303. Tight cost control and a rise in selling prices pushed up margins to 19.3 per cent from 15.4 per cent in 1997.

The results boosted Bovis shares, which rose by 12p to 273.5p, highest since their 200p flotation.

Mr Harris predicted strong growth in the housing market this year. He said buyers were enjoying the "best market conditions for 25 years" with falling interest rates and rising personal earnings.

Mark Hake, building analyst at Merrill Lynch, said Bovis's four-year landbank - one of the industry's longest - would help it exploit the turnaround in the market. The landbank would limit the risk of a sharp fall in margins, boosting the stock's defensive qualities.

Mr Hake rates the shares, on around eight times 1999 forecast earnings of pounds 51m, a "buy", noting that despite yesterday's rise they are still at a 10 per cent discount to the sector.