THE INVESTMENT COLUMN: Stick with Bellway if the housing market slows

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The Independent Online
BELLWAY IS the City's favourite house builder. The company, biased towards the budget end of the market and to the north of England, scores at or near the top of the class on financial measures such as return on capital, operating margins and forward sales.

If it wasn't for the psychological scars of the housing market crash of the early Nineties, Bellway's shares would be double their current valuation. It said yesterday that, going into the second half of its financial year, it has already sold 86 per cent of its targeted 7,000 homes. This will be the ninth year of record profits.

Investors value builders so poorly because of the meltdown they fear in the event of a housing market crash. It still seems more likely that the Bank of England has engineered a soft landing, however, and Bellway reports that business is at a "sustainable level" after the exuberance this time last year.

In the event of a bumpy landing, though, Bellway is better placed than its rivals. Its land bank is strong and conservatively valued. The regional structure makes the group flexible and gives it the scope to increase production (it has a target of producing 10,000 homes a year by 2010). It sells to private individuals and housing associations, giving skills that will be useful as the Government pushes for more homes in mixed private and social developments.

We are entering a crucial period for the house-building sector. If it emerges unscathed from a housing market slowdown, it should be on the cusp of a dramatic re-rating. Bellway shares, at 863p, are worth holding for that eventuality.