Shares in Bovis Homes Group plc (LON:BVS) (LSE:BVS.L) are 9.3% higher after it rejected merger proposals by Redrow plc (LON:RDW) (LSE:RDW.L) and Galliford Try plc (LON:GFRD) (LSE:GFRD.L). Redrow proposed a share and cash transaction for Bovis, while Galliford Try proposed an all-share transaction. Bovis reviewed the proposals and decided that neither reflected the underlying of its business.
Regarding the Redrow offer for Bovis’ shares, it was concluded by Bovis that the cash element of the offer would require shareholders to crystallise value at the current valuation. Redrow has indicated it is not willing to improve the terms of its proposal and discussions have been terminated. Talks between Bovis and Galliford Try are still ongoing.
There is obviously no guarantee as to whether a deal will be struck between the two companies. In my opinion, the takeover attempts of Bovis’ shares are more opportunistic, rather than the start of a period of consolidation for the housebuilding industry. The share price of Bovis had fallen significantly following its profit warning from earlier in the year. In my view, this left its shares trading on a relatively low valuation, which encouraged bid approaches.
In spite of today’s spike in its share price, Bovis’ shares are still underperforming those of sector peers Persimmon plc (LON:PSN) (LSE:PSN.L), Taylor Wimpey plc (LON:TW) (LSE:TW.L), Bellway plc (LON:BWY) (LSE:BWY.L) and Berkeley Group Holdings PLC (LON:BKG) (LSE:BKG.L). Taylor Wimpey shares are 10% up, Persimmon shares are 7% higher, Bellway shares have gained 16% and Berkeley shares are up 1% in the last year. Bovis shares are flat in the same time period.
Bovis also states in today’s investor update it is making good progress with plans to recover and improve group profitability and enhance ROCE. In my opinion, this is good news for its shareholders. A new CEO search is also progressing well according to the company. I think it has relative investment appeal in the long run as a turnaround stock. I’m optimistic about the sector due to supply and demand issues and think Bovis could be a relatively good performer.