Galliford Try’s all-share tilt at Bovis is more likely to succeed than Redrow’s part-cash/part-share offer
Wittingly or unwittingly, analysts believe Bovis effectively raised a “for sale” sign over itself when it issued a profit warning on 28 December last year.
Barely five weeks earlier in November, the group had issued a bullish trading update, with trading and profit for 2016 on course to deliver as expected. Its statement ended with an indication that it would provide a further update on 13 January; however no such statement materialised.
It is a reversal which highlights what industry-watchers believe to be the nub of Bovis’ current problems, namely that management took its eye off the ball in recent months. David Ritchie stepped down as the group’s chief executive in January – the search for a replacement continues – while there have been highly-publicised plumbing and electrical snags on some of its newly-built homes.
“Bovis has been far too bullish,” comments analyst Tony Williams of Building Value, “while at the same time it has suffered from serious quality control problems. Overall, management has lost its way.”
Redrow’s offer is opportunistic. It was seeing if Bovis was desperate; its shareholders might be. While it’s not a foregone conclusion that Galliford Try will improve its offer, this is the more likely of the two
Kevin Cammack, Cenkos
On the offer front, Redrow’s is largely seen as opportunistic. Williams believes that of the two, “an improved bid [from Redrow] is unlikely. It’s a deal that the market might like to see, but Redrow won’t want to pay [the equivalent of] £9 a share.”
This view is shared by Kevin Cammack of Cenkos. “Bovis is a weak player in a robust industry. It’s vulnerable,” he says. “But Redrow’s offer is opportunistic. It was seeing if Bovis was desperate; its shareholders might be. While it’s not a foregone conclusion that Galliford Try will improve its offer, this is the more likely of the two.” A better bid certainly could arise out of discussions which the target company admits are ongoing.
Will the interest in Bovis flush out a ‘white knight’ bidder? “It’s possible, but there won’t be a big queue when the price is at a premium to net asset value,” Cammack says.
One thing is certain, says Williams: “Bovis will go. I suspect Galliford Try will sweeten their offer in the coming days or weeks, maybe by 10%. But a rival bidder – maybe Bellway will be tempted, maybe from China – is also a possibility.”
A spokesman for Bovis said the group had experienced “well-documented problems. What was not so well-documented was the work that has subsequently been done to address them, including an extra emphasis on customer service, staff training and a slowing down of the build rate, all steered from the top by our interim chief executive”.
Galliford Try’s current bid values Bovis’ shares at 886p each, or a total market capitalisation of £1,191m. Bovis’ shares were trading this morning at 896p, up 8% on last Friday’s close.
Galliford Try has until 9 April to announce a firm intention to make an offer for Bovis. What it wants is a recommended offer scenario. The ball, it seems, is in Galliford Try’s court.
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