Housebuilder Bovis Homes (BVS) pares earlier heavier losses to trade down 7.4% at 778.5p. Interim CEO Earl Sibley (finance director before the departure of David Ritchie in January) is using full year results as a launching pad to reset the business after what the company itself describes as a ‘difficult year’.

WE WERE WARNED

The problems came to a head with a profit warning in December (28 December). Then came the revelation in January the company was paying cash incentives to customers to complete on house purchases before the end of the year as the group scrambled to hit growth targets.

BVSchart

Many customers who accepted the incentives have since complained about unfinished and defective homes. Due to ‘weaknesses in its production process’ and a ‘high level of customer service issues’ the company books a one-off £7m customer care provision alongside these results.

Sibley tells Shares the main operational priorities now are to ensure ‘customer service is embedded throughout the business and we have full control of our production processes’.

He adds the results of a full strategic and structural review will be announced ‘in due course’.

QUALITY OVER GROWTH

Pre-tax profit of £154.7m looks just short of the trimmed guidance of £160m to £170m given in late December but the bigger revisions are to expectations for the next two years as growth is dialled back to ensure customer service is returned to acceptable levels.

Jefferies cuts its 2017 volume estimate to the low end of guidance - 15% below 2016 - and assumes a 4% increase in operating costs to £80m. Its pre-tax profit estimates fall by 37% in 2017 and 29% in 2018.

The dividend per share pencilled in by the investment bank for 2017 is trimmed from 50p to 45p, given the company's guidance for a flat payout, and for 2018 from 55p to 50p.

Analysts Anthony Codling and Sam Cullen note: ‘We would encourage investors to look through today's downgrades as a necessary big step taken to address some big issues.

‘We welcome interim CEO Earl Sibley's boldness in seeking to grasp the operational issues at Bovis; in our view, he has listened to customers and shareholders, taken note and is now taking action.’

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Issue Date: 20 Feb 2017