Speedy recovery in housing ruled out

Mar 27 2008 by Andrew Mernin, The Journal

HOUSEBUILDER Bellway yesterday said a recovery in the housing market could take as long as late next year to kick in.

The warning came as the Newcastle firm unveiled a 3.9% drop in interim pre-tax profits and predicted “difficult times” ahead.

The company saw pre-tax profits drop to £96.9m in the half year to January 31, 2008, while turnover climbed 1% to £581.5m.

It sold 3,252 homes in the period compared to 3,264 a year earlier, with the average price edging up to £174,000 from £173,000 the previous year.

Finance director Alistair Leitch said performance in the North East had fallen in line with other parts of the UK which have been hit by the downturn in the housing market.

He said: “In the North East, sales were resolute in the first half but recently in the last month or so we have seen the North East slow down like other parts of the country – it may be the Northern Rock effect.

“This has been the quickest slowdown I have seen in the housing market. In the early 90s it was drip by drip effect but this has only been happening since last summer.”

Chief executive John Watson said the company faces tough times ahead and ruled out a quick recovery for the housing market. He said: “At the moment, 88% of our revised completions target for 2007-08 has been secured. The remaining 12% will not be easy to achieve in the current climate. The market is not going to turn around quickly and we reckon it will be another 12 months before the housing market picks up.”

Analysts Dresdner Kleinwort yesterday predicted that Bellway’s full-year profits would reach £187.2m.

Shares in Bellway fell 19.5p to 790.5p at the markets’ close yesterday.

ANALYSIS

OF all the British housebuilding giants, Bellway is in the strongest position to deal with the downturn in the housing market, according to recent reports. One national newspaper described the firm as “the pick of the bunch in this bear market” while analysts remain confident the North East business is ready to ride the rough seas ahead.

Vinay Bedi, divisional director of Brewin Dolphin Newcastle, believes Bellway’s property portfolio and geographical spread holds the key to its survival.

As first-time buyers find it increasingly hard to get on the property ladder, surely Bellway – a company which values a third of its houses at £150,000 or less – is well positioned to come out on top.

Vinay Bedi said: “Bellway has never focused on the top range market until more recent years and even now it’s still a minor part of its business.

“It has a much higher level of scale housing in its mix and a lot of property sites in the North East and Scotland which are more defensive areas at the moment.

“The company is perceived as having less risk than a business which is focused on the South East or much more expensive properties.”

PAGE TWO: Analysts' reports.