Bovis Homes Group Plc (LON: BVS)

London Stock Exchange-traded Bovis Homes Group Plc is a Home Construction company, with operational interests in designing, building and sale of the house for both private customers and registered social landlords. The group is a constituent company of mid-cap gauge FTSE 250, with an outstanding market capitalisation of £1.77bn.

Recent Events
Fund Raising
As on November 07, 2019, the home construction group company raised approximately £152.2m through an institutional placing of 13,472,591 new ordinary shares at a floor of the price of GBX 1,130/share, which was at a 2.8% discount from its previous closing price level. The placed shares represent around 9.9% of the issued ordinary shares of the group prior to placing. The proceeds will be utilised to satisfy partly-fund the cash consideration for the acquisition of Linden Homes and Partnerships & Regeneration businesses of Galliford Try plc

Acquisition of Linden Homes and Partnerships & Regeneration
In the exchange filing made by the group as on November 07, 2019, the group announced that it has agreed to acquire Linden Homes and Partnerships & Regeneration businesses of Galliford Try plc for a total consideration of £1.075bn. The transaction comprised of an equity stake in Bovis Homes Group Plc and cash consideration as well.

Recent Financial Results: H1 FY19 (ended as on June 30, 2019)

Source: Co. filings

The group recorded a decent performance in the first half of the FY19, with group's revenue surged 9% to £472.3m from £432.2m registered in the same period of the corresponding previous year, which sent group’s profit to a record high and strengthened the group’s balance sheet as well.

Led by decent revenue growth it achieved through an increase in total average selling price and volume growth, the group's operating margin recorded a growth of 140bps to 16.0% against 14.6% in the same period of the FY18.
Pre-tax profit surged 20% to £72.4mn from £60.2m, and Earnings per share leapt up 21% to 43.7p/share. During the first half of the FY19, the group's ordinary dividend per share declared soared up 8% to 20.5p/share from 19.0p/share recorded in the year-over period.

However, the group has also strengthened during the period as net cash jumped substantially by 139% to £102.4m from £42.8m reported a year-over period. Return on Capital Employed recorded a spike of 530bps from 14.5% in H1FY18 to 19.8% in H1FY19.

Stock Performance
 
Daily Price Chart (as on November 25, 2019), before the market close. (Source: Thomson Reuters).

Shares of BVS have delivered a splendid return of approximately 27% in a year-over period, surged by around 38.5% on a YTD basis, bagged about 16% in the past three months and traded 2.93% higher in the past five trading sessions. In a year-over period, its shares have registered a 52w high of GBX 1,256 and a 52w low of GBX 817.16.

While writing (before the market close, at 12:51 PM GMT), its shares traded approximately 1% higher at GBX 1,207.0 and at the current trading level, the dividend yield of the company stood at 5.15%, relatively higher against the benchmark FTSE 250 index.

Conclusion
The group recorded decent performance in the first half of the FY19, with revenue, profit, margin, EPS, and dividend all increased against the comparable previous period.

Also, the group’s Return on Capital Employed recorded a sharp jump of 530bps on a YoY basis to 19.8% from 14.5% in the H1FY18. The group has strengthened its balance sheet significantly during the period under consideration, as net cash position soared more than 100% at the end of H1FY19.

From the valuation standpoint, the group's shares were trading at relatively discounted valuation against the peer group, as in terms of price-to-book its shares were traded at P/BV multiple of 1.5x. In contrast, the industry average P/BV stood at 2.28x, which makes BVS shares cheaper within the home construction arena.

However, a higher chance of PM Johnson to take up Prime Minister’s office are sending home constructions companies shares higher. However, any adverse outcome of December 12, general election will have an adverse impact on the consumer sentiment, which could delay or cancel their home shopping plans as well.

Also, during the November 25, 2019 trading session, shares of BVS breached above the upper Bollinger Band®, which is generally considered that stock could witness some correction from the current levels in near-term.
Therefore, based on the above discussion and giving higher weightage on the upcoming macro uncertainties, we maintain our “Watch” recommendation at the current price of GBX 1,207.0 (as on November 25, 2019, before the market closed), while we look for any upcoming catalysts in the near term.

Great Portland Estates PLC (GPOR)

Great Portland Estates PLC is a London-headquartered property investment and development company which seeks to deliver value by unlocking the potential in central London commercial real estate to deliver long-term outperformance across the property cycle.

Recent Financial Results: H1 FY20 (ended as on September 30, 2019)

Source: Co. filings

The group’s performance during the period under consideration was moderate, as valuation was up just 0.8%, driven by committed developments and rental value growth. European Public Real Estate Association (EPRA) net assets per share (NAV) on September 30, 2019 stood at 868 pence per share, up by 1.8% over the last six months. Total accounting return for the six months to September 30, 2019 was reported at 2.7%. Due to the reduced property costs as well as increased profits from joint ventures, EPRA earnings were £28.1 million and expanded by 11.1% against the same period of the last year.

At September 30, 2019, consolidated net debt stood £322.7 million, and soared up more than 100% from £116.3 million recorded at the end of the comparable financial period.

Stock Performance
 
Daily Price Chart (as on November 25, 2019), before the market close. (Source: Thomson Reuters).

Shares of GPOR delivered 12.4% in the year-over period, around 21.59% on a YTD basis, 17.30% in the past three months, respectively. In a year-over period, its shares have registered a 52w high of GBX 817.60 and a 52w low of GBX 643.80.

At the time of writing (before the market close, at 01: 10 PM GMT), its shares traded 8.2 points or 1.02% higher at GBX 809.6, and at the current trading level, the dividend yield of the company stood at 1.57%.

Conclusion
UK’s commercial real estate markets were broadly flat in the last one-year, in the absence of clear direction as political and economic deadlocks prevalent due to continued negotiations regarding Britain’s future trade relationship with the EU bloc and the prospect of another UK general election. These factors continue to diminish business and consumer confidence over the summer, with PMI surveys further plummeting as the perceived likelihood of a "no deal" outcome increased.

For the rest of FY20, lack of any significant change arising from the upcoming December 12, general election or an adverse outcome with the EU, the group expect capital values and rental levels to continue their sideways trajectory.

Also, the group’s debt level soared up substantially at the end of H1 FY20, which has heightened the group’s balance sheet as well.

Therefore, considering the ongoing challenges persistent in the REITs arena, we have given an “Avoid” recommendation at the current price of GBX 809.6 (as on November 25, 2019, before the market closed).

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