Bovis Homes plc TNAV FY16 757p

Bovis Homes’s admission this morning that it had received two bids in recent weeks, namely from Redrow and Galliford Try, was always a very likely scenario in my mind. The shares had been languishing at 1x Tangible Net Asset Value (TNAV) after downgrades to 2017 volume targets and self administered pain from mismanaging their labour costs. The housing market remains relatively robust and the peer group is making hay. I will freely admit that it wasn’t part of my core thesis when running the rule over the company in October at 780p but the change of management plus another profit warning have put the shares into value territory. http://www.stockopedia.com/content/bovis-homes-starting-to-show-value-trading-on-1x-tangible-net-asset-value-155767/ Its always interesting when more than one industry player sees the value in a company that the stock market has almost given up on. I feel happy though as I did purchase a holding after the most recent warning at TNAV.

Land, Land, Land
The key for any housebuilder is the quality of its long term land bank. I wanted to get comfort on this issue. Looking at the FY results, Bovis had not written down the holding cost of its land despite recent issues, which gives any prospective buyers (trade or in the stockmarket) confidence that the land is at LEAST worth its value in the balance sheet. I say ‘at LEAST’ because remember the accounting convention that means that land is not marked to market in the way it would be in a property company. As a trading asset it is held at the lower of cost or net realizable value. So if the land is worth less than what was paid because house prices have fallen or there are specific issues eg huge remediation costs, then its carrying value in the balance sheet must be impaired. If it is worth more than its original purchase price because house prices, and by extension land prices have risen, then it remains at purchase cost in the balance sheet. Stated net asset value for the

Opportunity knocks
Galliford and Redrow have opportunistically tried to bid for Bovis as it has a national landbank of 18k plots of consented land (ie with planning or outline planning) plus a further 25k units of strategic land. I say opportunistically because the bidders have made their approach at…

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