Bellway tempted back on to land trail but warns housing remains fragile

Published on Tuesday 13 October 2009 21:24

BELLWAY yesterday warned that the housing market remains extremely fragile, despite an upswing in sales tempting the company into buying more land.

The Newcastle-based company, Britain's fourth-largest UK housebuilder, said it had contracted or agreed terms for land costing more than 120 million since the start of August.

While the deals could still fall through, the move signals a major change in tactics, after Bellway spent less than 95m buying land in the preceding 12 months.

Finance director Alistair Leitch said the company had been in "partial hibernation" for much of the previous financial year as it sought to cut debt, but now it was seeking "opportunistic" deals.

The company was tempted into the move by an improvement in demand. Its forward order book on 1 August, the start of its financial year, stood at 368m, 58 per cent of it anticipated revenue for the year.

While Bellway had seen an increase in sales in the past few months, Leitch warned that the market was "fragile" and the improvement may not represent a real recovery.

"We saw an improvement in July, when sales went up to 105 a week, then they dropped back to 80 a week in August, as we would have expected, and they've remained at 80 a week in September," Leitch said. "So there's been no great surge in demand."

Bellway has reduced the level of incentives it offers to secure its sales, but Leitch said some form of sweetener is still included in most deals. Its average selling price fell by more than 15,000 to 154,005 in the year to 31 July. "Everybody thinks there's a deal to be had, so they're coming in with that sort of mindset," he added.

Bellway's results showed an increasing divide between a recovering south of England and the rest of the UK, where activity remains low. Scotland and Yorkshire remain the weakest markets for Bellway.

North of the Border, sales fell by more than 60 per cent to less than 300 in the year. Leitch predicted activity would pick up this year, although probably not substantially.

"People in the south are probably a little bit more confident about their job situations at the moment. The unemployment axe is maybe hanging over the north a little more," he said.

Bellway reported an 82 per cent fall in profits before tax and exceptional items to 29.8m.

After writing off 66.3m against the value of its land bank, the group made a loss of 36.5m.

Bellway has set itself the modest goal of some improvement in sales and performance in the current financial year, while it does not expect to report further write-downs on the value of its assets.

Leitch said the group would maintain discipline when buying land, only doing deals with an anticipated gross margin of more than 20 per cent, based on current sales prices.

Bellway is paying a final dividend of 6p a share, the same as a year ago, although the total dividend of 9p is well down on last year's 24.1p.

Shares in the group fell 11.5p to 794p.