Rate cuts fail to lift house sales, says Bellway

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Successive interest rate cuts and government intervention have not yet come to the aid of the troubled housebuilding sector, according to Bellway, which revealed sales at less than half last year’s level.

Commenting on the government’s plan to help homeowners with repossessions, Alistair Leitch, finance director, said it would have “absolutely zero effect” on new housing.

“It will not entice Joe Public to buy a new property.”

Mr Leitch said the 1.5 percentage point fall last month had not increased visitors to its building sites and Thursday’s 1 percentage point cut was not expected to make a difference.

“I’m not expecting queues outside our show homes on Friday morning,” he said.

Lower interest rates were a minor concern to buyers compared with worries over unemployment. “Job security is the biggest thing,” Mr Leitch said. “If you feel any insecurity in your job, you are not going to go out and buy a house.”

Bellway blamed struggling rivals, which had sold houses cheaply to pay down debt, for a marked deterioration in margins. It advised investors that a further writedown of the value of its land was likely.

Like other builders, Bellway has stopped buying land and has reduced work on current projects in an attempt to preserve cash.

In spite of the downturn, Bellway expected to reduce net debt to £137m by July 2009, from £237m a year earlier, it said. That made it one of the UK’s least highly geared builders.

The shares closed up 11p to 509½p.

● FT Comment

For a cyclical industry such as housebuilding, one would think that a lightly geared balance sheet and flexible banking covenants would be the norm. Sadly, the opposite is true. Bellway is the only volume developer that has not scrambled to its bankers to beg for understanding at the worst possible time. That conservative approach looks to have paid off. Bellway’s equity is worth more than that of rivals Taylor Wimpey, Barratt Developments and Persimmon, having fallen a modest 50 per cent in a year. Whether that makes the shares attractive is another question. Bellway’s 19 times price/earnings ratio tells us little; cash is king in the current environment. The net asset value, at 893p a share, is well above the share price but is underpinned by land designed to host houses nobody wants to buy at present. Bellway may be the least troubled of the lot, but the sector is best avoided for now.

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