Investment Column: Dynamic approachand a firm foundation pays off for Bellway

UBM; Interserve

Our view: Buy

Share price: 698.5p (21p)

"T he 100 per cent mortgage is back," screams Bellway's website. Of course, there's going to be small print. But house-builders have had to innovate and this has seen them getting much more actively involved in home financing.

It seems to be paying off for Bellway, which yesterday unveiled creditable results for the year ending 31 July. Completed sales stood at 4,922 homes against 4,595, turnover at £886.1m against £768.3m and pre-tax-profits at £67.2m against £44.4m.

Crucially the £175,613 average selling price achieved is well ahead of the £163,175 of the previous year. And the group felt able to increase its dividend to 8.8p from 6.7p.

In line with Hometrack's figures earlier this week, the South was the star in terms of prices with northern developments treading water. But operating margins also increased – while others are facing up to sharp rises in raw material costs, Bellway's are negotiated 12 months in advance, smoothing volatility. It has also been able to negotiate with contractors from a strong position. With building work still limited, contractors must price keenly to snap up what is available.

Costs still face pressures (regulation, etc) but Bellway is nonetheless in an enviable position. And we don't think house-builders are a bad place to park one's money, with the sector having made efforts to cut costs, reduce debt and build up banks of cheap land. Britain also still faces a shortage of housing and even though the economic outlook is poor, interest rates are set to stay low, while people who have sat on their hands, putting off moving or buying, are starting to trickle back into the market.

What's more, Bellway trades at an enormous discount to its net asset value per share, forecast by Panmure at 921p for 2012, although the forecast yield ( 2 per cent) is nothing to write home about.

On the downside, Bellway has faced criticism over its executive remuneration policies. For us that is a black mark. But we think Bellway is looking cheap now and merits a buy (we held at 760p last March). We'd just urge investors to vote at the annual meeting.


Our view: Hold

Share price: 481.8p (+16.6p)

The media sector is usually the first to feel the impact of a chill, but while UBM's share price has been undergoing an alarming slide, there aren't any signs of a downturn in the numbers. Yet.

Yesterday's nine month trading update was remarkably encouraging given the recent economic news. Revenue was up by 9.8 per cent to £706.2m. The events business was a star (revenues up a stunning 26.6 per cent), although print (sadly) continued to struggle (revenue down 17 per cent).

What makes UBM worth keeping tabs on is that it has been steadily shifting its portfolio. The declining print division is less important, while 22 per cent of revenues now come from (so called) emerging markets. Which ought to provide it with some protection should Western economies sink into the mire.

On valuation grounds, UBM is now looking cheap after the struggles its shares have been going through, trading at just 8.5 times full-year earnings while offering a cracking prospective yield of over 6 per cent, although the £51m net debt is higher than we'd like (it is at 2.4 times earnings before interest, tax, depreciation and amortisation).

We said hold in April at 537.5p. But because of the economic outlook we're still wary of upgrading to a buy, even if the valuation looks increasingly compelling. All the same, this is no time to exit, not least because of that yield.


Our view: Buy

Share price: 309p (-1.4p)

It's a hard life being an analyst. The scribblers who keep watch on Interserve are enjoying the sun out in Qatar so they can get a look at the operations the support services, maintenance and building group has in the country that will controversially host the 2022 Football World Cup.

Controversy over prestige events aside, what should interest investors about Qatar is that the country is forecast by the IMF to be the world's fastest growing economy in 2011, with a GDP growth rate of 20 per cent and plans to splurge $225bn (£143bn) on new infrastructure between 2011 and 2016. Not a bad place to be for Interserve, then.

With expanding businesses in other growing regions (eg, Australia) Interserve has felt comfortable with reiterating its pledge to double earnings over five years. It's working in the right places and the right sectors (such as energy) that will help cushion it from the turbulence in this part of the world.

We were buyers at 223.8p last year, so the shares have done very well for us. But they remain distinctly under-valued at 6.6 times forecast full-year earnings while yielding 6.2 per cent, a yield which doesn't look under any threat, not least because payments to fill a hole in the pension scheme are predicted to fall quite sharply. Buy.

Start your day with The Independent, sign up for daily news emails
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Editor-in-chief - Financial Services - City, London

£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Guru Careers: Management Accountant

£27 - 35k + Bonus + Benefits: Guru Careers: A Management Accountant is needed ...

Guru Careers: Project Manager / Business Analyst

£40-50k + Benefits.: Guru Careers: A Project Manager / Business Analyst is nee...

Day In a Page

General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'
Sarah Lucas is the perfect artist to represent Britain at the Venice Biennale

Flesh in Venice

Sarah Lucas has filled the British pavilion at the Venice Biennale with slinky cats and casts of her female friends' private parts. It makes you proud to be a woman, says Karen Wright
11 best anti-ageing day creams

11 best anti-ageing day creams

Slow down the ageing process with one of these high-performance, hardworking anti-agers
Juventus 2 Real Madrid 1: Five things we learnt, including Iker Casillas is past it and Carlos Tevez remains effective

Juventus vs Real Madrid

Five things we learnt from the Italian's Champions League first leg win over the Spanish giants
Ashes 2015: Test series looks a lost cause for England... whoever takes over as ECB director of cricket

Ashes series looks a lost cause for England...

Whoever takes over as ECB director of cricket, says Stephen Brenkley
Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power