Bellway eyes more land buys

Tue 13 Oct, 2009 10:20

By Paul Sandle

LONDON (Reuters) - Housebuilder Bellway (BWY.L) posted an 82 percent fall in pretax profit, beating market expectations, and said its strong cash position made it well placed should the housing market mount a robust recovery.

Chief Executive John Watson said the company had learnt the lesson of previous recessions and had prioritised cash generation during the downturn, giving it a warchest to buy land.

"There's a bit more stability in the market -- builders have dropped their prices and lenders are a little bit more relaxed," he said in an interview on Tuesday.

Recent data points to a recovery in the housing market. Mortgage lender Halifax said house prices rose 1.6 percent in September month-on-month, while The Royal Institution of Chartered Surveyors said prices were rising at the fastest rate since the credit crunch began more than two years ago.

Watson said there was a split in the housing market, with demand in the south of England much firmer than in the north, and rising unemployment meant a double-dip in house prices could not be ruled out.

"There's equal risks on both sides of the fence," he said. "Unemployment is the big worry."

Shares in Bellway, which have fallen 12 percent from a 20-month high of 927.5 pence on September 18, were 0.9 percent higher at 813 pence by 9:59 a.m. British time.

Panmure Gordon upgraded the company to "buy" from "hold" following the better-then-expected results, and said it expected to raise its 2010 pretax profit forecast to about 24 million pounds from 15.6 million pounds.

"We believe that Bellway is well placed to take advantage of the current market opportunities, and this should stand the business in good stead for the future," the broker said in a note.

LAND GRAB

Watson said Bellway had slashed debt in the year -- by 180.9 million pounds to 36.8 million pounds -- and had raised a further 43.7 million pounds from shareholders since year-end.

The money was raised to buy land, in contrast to peers Barratt (BDEV.L) and Redrow (RDW.L), which turned to investors in September to strengthen their balance sheets.

"We are one builder that can throw a chequebook at land if the opportunities are there," he said. "We are seeing opportunities to buy at what we think is the right time in the cycle."

The group had agreed to spend 120 million pounds buying land since August, the majority of which was in the South, he said, and had headroom of 370 million pounds to buy more.

The company, which sold 4,380 homes in the year to end-July, reported a pretax profit of 29.8 million pounds ($47.1 million), down from 165.7 million pounds a year earlier, on turnover of 683.8 million pounds, down from 1.15 billion pounds.

Analysts were expecting the group to post pretax profit of 26.8 million pounds and revenue of 668.0 million pounds, according to Thomson Reuters I/B/E/S.

Bellway, the only national builder to currently pay a dividend, kept its final payout steady at 6.0 pence a share.

(Editing by Matt Scuffham and Simon Jessop)