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Bellway (BWY) – Interims PTP: £96.9m (£100.8m) Divi: 18.1p (16.45p)

Falling house prices mean that annual price inflation is at 1.1%, its lowest level for 12 years. Still, Bellway has posted in-line interim results and reassured investors with a 10% increase of the interim dividend.

The City is pretty bullish about Bellway, the UK’s fourth largest house builder, because of its geographical spread, its clever forward selling strategy, a strong balance sheet and good relationships with providers of low-cost housing. The number of houses sold in the period was similar to last year’s, but despite an increase in the average selling price, interim profits dipped by 4% to £96.9 million due to falling margins.

An aggressive forward selling strategy secured Bellway 88% of the full year’s projected turnover, and visitor rates are strong. However, these are not translating into the order book, and at the end of this year the company will have built around 7.5% fewer houses than 2007, according to number crunchers at Landsbanki. This will add to an 80 basis points reduction in full-year margins and a further 100 basis points reduction through 2009.

This means things are not pretty but Landsbanki is adamant that credit crunch worries are already priced in, and reckons that lenders will refine their lending criteria and sort out the frozen loan market. Bellway also highlights the ‘softening’ land market where opportunities can arise. Demand for housing in the UK is fundamentally high, however, it may be a long time before mortgage approval rates pick up, and it still is a risky share.

Shares says: The shares are well worth holding on to if you are patient enough to wait for the UK banks’ crisis to unwind.

by: Carlo Svaluto