After a steady first hour of trading following its quarterly trading update housebuilder Bovis Homes (BVS) finds itself heading the FTSE 250 list of fallers on Thursday, the shares slumping 8% to 965p.

Housebuilders in general are being sold off in reaction to the resignation of the Brexit secretary Dominic Raab. This raises the risk of a ‘no-deal’ exit from the European Union next March, or perhaps no exit at all.

Bovis reported that for the period from July to mid-October weekly sales per outlet were consistent with last year and that trading overall was in line with its expectations.

Help to Buy is underpinning demand from first-time buyers and it is making greater use of part-exchange, which accounts for around 15% of second half reservations.

SLOWING DEMAND

However, the company noted that demand from ‘discretionary’ buyers has been impacted by the uncertainty surrounding Brexit which has clearly struck a chord with traders today.

On a positive note Bovis seems to have been successful in rebuilding its reputation after having to compensate buyers for faulty homes last year.

That did nothing good for customer satisfaction scores, although the company is optimistic that it has rebuilt some of that lost trust since then.

With full year sales targets already achieved and margins having improved, Bovis expects to make record pre-tax profits this year.

Consensus forecasts are anticipating £165m of pre-tax profit for the year to 31 December 2018, versus £121m last year.

BUMPER INCOME, IN THEORY

Analyst are also expecting a 102p per share dividend this year, which implies an eye-popping income yield of 10.6%, coincidentally, roughly in line with the stock's price to earnings multiple.

It's worth noting that this does include an anticipated 45p per share special dividend this year, thanks to piles of surplus cash earned over the years by Bovis and other housebuilders. The company had net cash of £43m at the end of the first half in June.

Instinctively, double-digit dividend yields seldom stay that way. In the case of Bovis it appears that either analysts are too optimistic about future prospects, or investors are far too gloomy. Individuals will have to decide which for themselves.

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Issue Date: 15 Nov 2018