Galliford Try Rejects Bovis Approach

Talks with FTSE 250 housebuilder Bovis to buy Galliford's housebuilding arm have broken down

James Gard 28 May, 2019 | 11:01AM

Bovis Homes

Shares in Galliford Try (GFRD) climbed as the FTSE 250 construction and property company confirmed it had rejected an offer from fellow mid-cap housebuilder Bovis (BVS) for its housebuilding arm.

Galliford said in a statement it had rejected a preliminary offer from Bovis for its Linden Homes and Partnerships & Regeneration division on the grounds that it does not fully value the businesses. The offer would have seen Galliford shareholders receiving Bovis Homes shares for a total consideration of £950 million and £100 million of Galliford’s debt.

Shares in Galliford rose more than 5% to 561p after the annoucement.

Galliford Try is unusual in that it is not a pure listed housebuilder like Persimmon (PSN) or Taylor Wimpey (TW.). It also works on civil construction projects such as airports, prisons and office buildings.

Bovis’s offer would have been for the housebuilding division rather than the entirety of Galliford Try.

Bovis confirmed that the talks had broken down and that the two parties are no longer in discussion. In 2017, the scenario was reversed: Galliford Try failed in its attempt to buy Bovis Homes, which at the time was seen as a laggard in the sector.

The housebuilding sector has been under pressure this year as the property market has slowed and shareholders have voiced concerns over executive pay at Persimmon.

In February’s annual results, Bovis’s pre-tax profit was up nearly 50% to £168 million, a new record, and the board recommended a 20% increase in the total dividend payout for the year to 57p per share. The yield is now more than 5%, compared with nearly 12% for Persimmon.

The strong financial results could not escape the slowdown in the UK housing market, however: Bovis sold 3,759 homes in 2018 - just 114 than in the previous year - and the average selling price is just 0.3% higher year-on-year.

Bovis’s shares fell in the equity market sell-off at the end of 2018 but have recovered to nearly £10 in the last few months. The share price was largely unchanged this morning.

Galliford Try is held by a range of active and passive funds. Two-star and Neutral-rated Jupiter Distribution and Growth Fund has almost 1.5% of its assets in Galliford. Three-star rated Premier Ethical Fund has a similar weighting. With Galliford shares yielding more than 14%, it is represented in a number of dividend ETFs and closed-end funds focused on income such as Henderson High Income Trust (HHI), which has a three-star rating from Morningstar.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Bovis Homes Group PLC1,022.00 GBX0.39
Galliford Try PLC640.50 GBX-0.54
Henderson High Income Ord178.50 GBX0.28
Jupiter Distribution and Growth I Inc120.95 GBP-0.52
Persimmon PLC1,936.50 GBX-0.46
Premier Ethical C Acc314.75 GBP-0.84
Taylor Wimpey PLC156.60 GBX0.64

About Author

James Gard  is content editor for Morningstar.co.uk

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