Bovis bets on recovery as it re-enters land market

Housebuilder 'optimistic' in spite of first-half losses

Bovis is to start buying land again despite a pre-tax loss of £8.6m in the first half, the housebuilder said yesterday. The troubles in the property market in the first six months of 2009 pushed the group's revenues down by 18 per cent to £123m, dragging profits down by more than 190 per cent and into the red.

The company is "cautiously optimistic" about the housing market, on the strength of six consecutive months of escalating mortgage approvals and three months of rising prices. But any recovery remains precarious.

David Ritchie, the Bovis chief executive, said: "Mortgage approvals are still less than half the 2007 rate, so we have to recognise that this is still a fragile market, and it wouldn't take much in the way of bad news for people's confidence to be knocked back."

Until the economy is on a surer footing, the housing sector will remain similarly uncertain. "We have not yet seen the full impact of unemployment, and things like interest rate policy may also have an impact of future affordability," Mr Ritchie said. "So we are not calling the market either way, but we are in an odd period where there is stability in the market and it looks like good news, but the sector is not out of the woods."

Against the background of a depressed but stabilising market, Bovis is now ready to start buying more land. The company has no debts and saw cash flow of £94m in the first half, thanks to a strategy to sell off its inventory, putting it in a good position to invest.

"We do not owe the bank any money so we have debt facilities available to us, which means we can look at the land market very positively," Mr Ritchie said. "We have started our land acquisition search and anticipate the first few purchases in the second half of this year."

To cut its inventory, Bovis reduced its work-in-progress by more than 500 units in the first half of the year, building just 221 units and selling 744.

The recession has battered land values. Bovis wrote down its land portfolio by 2 per cent, equivalent to £9.8m, in the first six months of the year, dragging the group to a loss. But the change was the merest tweak compared with the £75m, or 12 per cent, revaluation at the end of last year.

"The fact that the inventory value was only modestly updated from December shows we are not significantly concerned about the movement in prices in the first half," Mr Ritchie said. "What is absolutely clear is we believe we can get back into the land market with a strong balance sheet and cash available to us, and because of that we will be a credible buyer."

Bovis's larger rivals Bellway and Taylor Wimpey both also issued positive trading updates this month. But not everyone is so bullish. Mortgage-backed debt investors are predicting another 12.7 per cent fall in house prices before the market bottoms out, according to a survey published by Royal Bank of Scotland yesterday. More than four out of five respondents say prices have further to fall, despite having already lost 15 per cent since October 2007.