Bellway reports healthy spring for sales but warns of long-term worry

Published on Thursday 9 June 2011 22:16

HOUSEBUILDER Bellway yesterday brought some welcome cheer to the housing market as it reported a healthy spring selling season after consumer confidence appeared to improve.

The UK's fourth-biggest housebuilder, which has a string of developments across the Central Belt, said uncertainties in the autumn period had diminished as a more normal reservation pattern returned.

The Newcastle-based company posted a 9 per cent increase in its sales rate in the 17 weeks to 31 May to 111 units per week as the average selling price increased 4 per cent to 182,000.

Housebuilders are expecting a difficult 2011 as public spending cuts and weaker consumer confidence test the market.

Bellway said the improvement in average house prices was driven by changes in its product mix and a greater contribution from higher-value units in and around London, where demand is strongest.

It said it had spent 220 million on land in the year to date, which saw net debt rise to 57m by 31 May.

The company warned constraints to mortgage supply, particularly to first-time buyers, combined with wider economic concerns, posed challenges to the housing market.

But it added that, with a strong order book and the increasing contribution from sites acquired since the downturn, it was well-positioned to deliver growth.

Bellway reported pre-tax profits of 24m in the half year to 31 January, up from 19m a year earlier. The firm was formed in 1946 and now employs about 1,400 people in the UK. Jon Bell, an analyst at Shore Capital, said that Bellway's "increased focus on the south-east (of England], where market conditions are more favourable, is likely to have contributed (to the rise in sales]".

He added: "The company's shares are trading on a circa 20 per cent discount to last reported net-asset value (866p].

"We reiterate our 'buy' recommendation, believing that Bellway's strong balance sheet leaves it well placed to buy new land on attractive margins."

But Jonathan Jackson, head of equities at Killik & Co, was more cautious.

"Given the ongoing pressure on UK consumers, particularly in the housing market where lending conditions remain constrained, we would continue to avoid the sector in the short term and maintain our recommendation that holders of Bovis take profits," he said.But he added: "We remain positive on the sector over the long-term as it stands to benefit from a finite supply of land, strict planning rules, insufficient housing completions and an increasing population - all likely to support rising house prices."

Peel Hunt analyst Robin Hardy concurred with a "sell" recommendation, noting that "sector valuations still look too high" and that mortgage approvals point to further price falls.