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