Revealed: The UK housebuilder share with the ‘most upside’ from here The UK housebuilder share with ‘most upside’ from here

Mark Wright, who runs the Seneca Diversified Growth fund, has revealed the one UK housebuilder he thinks has the most upside from here.

 The UK housebuilder share with ‘most upside’ from here

Wright sees profit in housebuilder shares

The stock in question is Bovis Homes. Wright told What Investment that, ‘Bovis Homes shares trade at around one time {the book value of the tangible assets of the company} while most of the other housebuilders trade at around 1.8 times book value. So we see a lot more upside with Bovis.’

He continued, ‘the margins achieved by Bovis are lower than for some of their peers, so there is scope to increase those, and the volume of new units they produce every year are lower than their competitors, so there is potential upside from there.’

Read more: Why I’ve bought more shares in UK housebuilders since Brexit, by investor of £2 billion

The fund manager added, ‘and the thing is, if the current board of Bovis Homes don’t improve those things, and improve the returns to shareholders, someone else will do it for them, it is probably not a surprise that Bovis has been in the news a lot lately as a potential takeover target.’
Of the outlook for the sector as a whole, Wright commented, ‘these are very different businesses to those before the financial crisis, the management are showing much better capital discipline and have net cash on the balance sheet.’
Better capital discipline means being more prudent about how capital is deployed, rather than, as in the past, simply using all of the capital to expand.
Wright noted that before the financial crisis there were around 12,000 house building companies in the UK, now there are 3,000. He feels this should prevent over-supply crippling the market.
In terms of costs, he said that the housebuilder companies had in the past year or so reported increase wage costs, but not increased materials costs. More recently companies had reported higher materials costs as a result of the fall in sterling, but not higher wage costs, and either way, have the capacity to pass on those higher costs to customers.
The Seneca Diversified Growth fund has returned 50 per cent over the past five years.

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