EFTA01385506.pdf

> Consumer Deutsche Bank Bovis Homes — Glynis Johnson, BUY, close 1185p, 1368p tgt, 15% upside • Management's targets for 2020 are credible (EBIT margins >18% and Bovis has the best yield in the sector, and one of the best in the market ROCE >25%) and provide scope for upside. We see scope for expansion from the following sources: 2.5 - Land bank intake margin is 26.4%, above the gross margin target of x 23.5% lo 2.0 • Berkeley 4 Bovla U. * McCarthy *Persimmon - Contingency costs assumed in the current land bank and all new land .O 1.5 * . edrow • • Taylor intake should edge lower. These have increased from 2.5% to 4% of Beltway Crest build cost, but the CEO has guided that these should fall. 8 1.0 • • Barratt C - We have not included any benefits from new housetypes from 2018. 4? 0.5 > This could help bring cost savings and economies of scale. 0.0 - Admin costs are targeted to be below 5% of sales. They are at the top 3% 4% 5% 6% 7% 8% 9% 10% of the peer group at present and so this target implies substantial cost Dividend yield Source: Deutsche Bank savings, but we believe volume improvements could help too. • >9% dividend yield from special cash return of £180m over three years. We see margin upside from the land bank, with land trailing house prices • Potential for higher dividends if Bovis constrains its land buying plans. Reducing land buying by half would increase cash available by £75m. The 120 110 —Halifax HPI Greenfield land CEO is incentivised to pay out more than £180m in his LTIP. 100 • Organic cash flow can support the dividend post 2020. The cash 90 80 generation potential is impressive, with a 2018E FCF yield of 18.0%. 70 • Stock is still cheap at 1.2x 2018E P/TNAV, despite 30% rise in last six 60 50 months. 40 is Catalysts: FY trading update on 12th January, FY results on 1st March. 30 g U) U) 8 1- N- a a o Related DB Research: 0? N- CO O) a W O) r O))2 9 9 r 0 in 0 -L 0 O O O -L 1 V) 0) ' 3 -L U) U) 1 N- Bovis: Benefits of strategy becoming evident (Johnson), Mz'Mz'Mz'M 2, mci o tues 'ul op too Mz'Mz'Mz'Mz'Mz'M t0o UK Housebuilders: 2018 Outlook — Better for longer (Johnson) Source: Deutsche Bank. Halifax. Land: Savills UK rosi land der index. Rebased: Doc 2007 = 100 Deutsche Bank Retsearch• European Equity Focus -Januttiy 2816 CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0086792 CONFIDENTIAL SDNY_GM_00232976 EFTA01385506