Bellway

Tuesday, 19 October 2004

Housebuilder Bellway’s full year results for 2004 were ahead of market expectations. The number of houses sold increased by 332 to 6,610 a growth of 5.2% over 2003 and selling prices increased by 7.8% in the same period (to £161,400)

Turnover grew by 14.5% to £1,092m, growth being stronger in the south (up 17.1%, driven by higher volumes) than in the north (up 9.8%, driven by higher prices). The north generated 46.2% of turnover with the south contributing 51.2%.

Improved gross margins (24% against 22.5% last year) translated into improved operating margins (19.5% against 18.1% last year) resulting in a 23% growth in operating profits to £213.2m.

Interest expenses increased by almost 30% (to £7.7m) due to increased borrowings which were used to build stock. Interest cover (27.6x) is good and gearing is still low (26.7%).

The company has adopted a strategy of aggressive forward selling and carries an order book of £587m, half its anticipated sales for 2005. The company is sound, the only significant downside is that associated with the sector. The wide geographic spread of its activity will translate to smoother earnings, compared to companies that are more regionally focused, although the company will be affected if there is a more general downturn in the industry. The stock trades at 690p on 5.3× prospective PE, towards the bottom of the sector. Yield is reasonable at 3.8%.

Bellway

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