Bellway Share Discussion Threads

[spob] 04/10/2008 02:02

RNS Number : 2735B
Bellway PLC
14 August 2008


Bellway plc
Trading Update
14th August 2008

Bellway completed the sale of 6,556 homes (2007 - 7,638) in the twelve months ended 31
July, a fall of 14.2%. The average selling price
of these homes reduced from £173,300 to approximately £169,000, primarily as 20% of the
completions were to housing associations. Bearing in
mind market conditions, and the fact that the cancellation rate increased to unprecedented
levels towards the end of the financial year, we
consider this to be a satisfactory performance.

Clients have been incentivised on a measured basis to sustain transaction levels and, as a
consequence, operating margins are likely to
be eroded from last year's 18.7% by up to 3%. Widespread land write downs are not envisaged
but the position is being monitored in light of
market conditions.

As was highlighted in the Interim Management Statement, restricted mortgage supply and a
lack of customer confidence had led to lower
levels of activity. This situation has continued throughout June and July resulting in
reservations falling by around 45% for the second
half of the financial year when compared to the same period in 2007. Notwithstanding this, the
Group's order book of future sales at 31 July
was £370 million (2007 - £594 million), of which 62% is currently contracted. An increasing
number of housing association sales held in the
order book should ensure a further increase in this area of our business in 2008/2009.

The Group has reduced expenditure on land during the year which may result in a reduction
in our total land bank position. Whilst
conscious of avoiding long term damage to any future growth potential, we have amalgamated a
number of divisions and reduced overheads
accordingly. This, combined with tighter controls on work in progress expenditure, has enabled
the company to operate well within its
banking facilities, ending the year with gearing of almost 23% and with only 45% of the
Group's facilities utilised.

Presently, the Board is fully focused, given the current market conditions, on conserving
cash, preserving shareholder value and
carefully positioning the Group to benefit from any sign of a return to more normal levels of
activity.

The preliminary results for the year ended 31 July 2008 will be announced on Tuesday 14 October 2008.

[sleveen] 07/9/2008 08:00

Tv prog channel 4 9pm Monday about the housing market... could be an indicat
or that the bottom of the slump is near?

[sleveen] 05/9/2008 18:29

`Bear Market'

``We're clearly in a bear market,'' Simon Moss, who manages the equivalent of $4.1 billion as investment director of U.S. equities at Scottish Widows Investment Partnership in Edinburgh, said in a Bloomberg Television interview. ``There is no doubt the economy is slowing.''

Move over Einstein, Newton and Hawkins... we're in a bear market ....this man is a genius IMHO

[zimzoot] 05/9/2008 13:47

bad us data

U.S. Payrolls Fell 84,000; Jobless Rate Jumps to 6.1%

U.S. Stock-Index Futures Extend Decline on Decrease in Payrolls

By Lynn Thomasson

Sept. 5 (Bloomberg) -- U.S. stock-index futures extended declines after employers cut more jobs than economists had forecast in August, sending the unemployment rate to a five-year high.

General Motors Corp., United Technologies Corp. and Home Depot Inc. all retreated more than 1 percent after the government said payrolls shrank by 84,000 jobs in August, more than the 75,000 projected by economists in a Bloomberg survey. Merrill Lynch & Co. tumbled after Goldman Sachs Group Inc. advised selling shares of the third-biggest U.S. securities firm on expectations it may post more writedowns tied to credit-related investments.

Standard & Poor's 500 Index futures expiring in September lost 12.80 points, or 1 percent, to 1,223.8 at 8:35 a.m. in New York. Dow Jones Industrial Average futures lost 107 to 11,093. Nasdaq-100 Index futures dropped 19.75 to 1,756.

The S&P 500, the benchmark index for American equities, lost 3.6 percent this week as a government report yesterday showed the number of Americans collecting unemployment benefits reached a five-year high. Commodities producers tumbled amid concern slowing growth will curb demand for oil and metals.

`Bear Market'

``We're clearly in a bear market,'' Simon Moss, who manages the equivalent of $4.1 billion as investment director of U.S. equities at Scottish Widows Investment Partnership in Edinburgh, said in a Bloomberg Television interview. ``There is no doubt the economy is slowing.''

Stocks in Europe and Asia fell today, sending the MSCI World Index to its worst weekly slump since 2002, on concern weakening economic growth will curb earnings at semiconductor makers while credit-related losses at banks increase.

The S&P 500 has lost 16 percent in 2008 as subprime-related losses at global banks climbed above $500 billion and the U.S. economy teetered on the brink of a recession. This week's losses threatened to erase the S&P 500's rebound from an almost three- year low set on July 15. The index is up 1.8 percent since then after rebounding as much as 7.4 percent.

Merrill Lynch & Co., down 51 percent this year in New York trading, sank $1.33 to $24.88. Goldman added the company to its ``conviction sell'' list and lowered its share-price projection by 23 percent to $22.

``Merrill currently trades at the highest price-to-book multiple in our large-cap brokerage universe, despite having some of the most significant exposures to troubled assets such as CDOs, mortgages and leveraged loans,'' analysts led by William Tanona wrote. ``With these markets still under pressure, we believe additional writedowns and book value deterioration will continue to plague the stock.''

New York-based Merrill, battered by more than $50 billion of credit market losses and writedowns, has sold mortgage-linked assets to reduce risk and free up capital. The company trades at 1.22 times book value, compared with 0.91 for Citigroup Inc., the only other firm that's lost more from the credit market crunch, according to data compiled by Bloomberg.

[scruffydave] 26/8/2008 19:45

From the psn bb - hope copying over is ok. It is relevant to bwy investors you'll find.

kiwihope - 26 Aug'08 - 13:18 - 897 of 899


After watching PSN's presentation of their interims last week it suddenly dawned on me that their experienced management team may be hatching a cunning plan.

It was one of the last questions by an analyst in the audience - he stated, somewhat increduously to the FD that if PSN achieve what they are trying to with cashflow, that they could almost halve their debt sometime next year. The FD smiled and said that the figures quoted were the analysts but he had the right idea. The CEO then piped up and said it just showed that when they set their minds to it, the business can generate huge amounts of cash. At this point the chairman, CEO and FD all looked like the cats who had just nicked the cream.

What I think they may be doing is aiming to deliberately reduce their debt by more than is actually necessary to be prudent (e.g. by cutting the dividend more than expected) so that in 12-18 months time, when the market is just starting to improve, they will have the firepower to take out one or more rivals at a good price. And if the market recovery is delayed, well they have ensured they will survive by their low debt.

This thought was reinforced by a comment I remember the CEO Mike Farley making earlier this year. Asked if PSN was looking at acquisitions he said "... no, not yet ...there will be more opportunity later ..."

On reflection this behaviour is so typical of PSN. From a low debt position and with a good 2-3 years housing market forecast, they borrow to buy a rival. Because their gearing is low to start it still isn't horrendous but they reduce their land-buying so they can pay-off as much of the loan as quickly as possible, before the market has a chance to turn.

I would bet that this is their plan, if the housing market lets them. I don't think they would go after one of the big boys - Barratts or Taylor-Wimpey - because their debt is too high. On an enterprise-value basis these companies are still quite expensive. But someone like Bellway that has low debt AND a low stock market valuation may be attractive, and easier to swallow. There are also the strategic issues that I can't comment on.

Even if I am totally wrong, I am very pleased that management are putting such efforts into reducing debt and maximising cashflow. In a tough market this is critical and these guys have all been through it before.

[kiwi2007] 14/8/2008 12:38

Liberum Capital:

The dash for cash

We believe that the sector's volatility is likely to continue, but see share prices supported by strong cash flow and smaller write-downs than widely supposed. Barratt (Buy) should perform as the market comes to see it as better than it realises. Persimmon (Sell) looks relatively expensive as the market is likely to start worrying about covenant breaches. Berkeley (Hold) is fully valued, in our view. Taylor Wimpey (Hold) looks very cheap, but is too risky until refinancing is in place.

We expect to see house prices fall by 10% in 2008 and 10% in 2009, as the impact of constrained mortgage availability plays out. We see some stabilisation in mortgage approvals from current levels, but this would still mean transactions down 50% in 2008 and 9% in 2009.

The companies have responded rapidly to the downturn, cutting costs aggressively and running the businesses to maximise cash generation. Investors often overlook the significant sunk capital that housebuilders have made that should turn into cash over the next couple of years as landbanks are not replenished.

In the absence of earnings or dividends, we believe that the market is likely to focus on asset values in valuing the stocks. We think that an appropriate measure to use is EV / net tangible asset value, which captures the variables that the market should focus on, debt repayment and land write-downs.

The sector has fallen by 70% since house prices peaked in January 2007, as investors have worried about financial positions and land write-downs. We think that landbanks are generally better bought and older than widely assumed, so land write-downs are likely to be no more than 50%, and we see cash flows as strong enough to pay down debt quite rapidly.

We initiate coverage of Barratt (Buy, fair value 199p), Berkeley (Hold, 946p), Persimmon (Sell, 324p) and Taylor Wimpey (Hold, 81p).

Plenty to chew on there.

All courtesy of FTAlphaville...

[kiwi2007] 14/8/2008 12:35

but...

Cazenove provided a handy list of reasons to keep shorting the housebuilders this morning:

Reasons not to be optimistic:

Consumer price inflation increased to 4.4% in July from 3.8% in June and yesterday's Bank of England Quarterly Inflation Report suggested that it remains "more likely than not" that CPI inflation will breach 5% in the coming months. This in our view makes a cut in base rate unlikely in the short term.
Little has been done to quash the uncertainty regarding stamp duty rates. Not surprisingly potential buyers are standing back from the market or delaying exchange of contracts until the picture becomes clearer, which will not help the housebuilders meet either their volume or cashflow targets.


RICS commented that the average number of transactions per surveyor in the May-July quarter was 14.4, the lowest figure ever recorded and led the institute to remark that "first time buyers [are] rapidly becoming an endangered specie."
Fixed rate mortgage rates are starting to fall. The average rate for a two year fix stood at 6.36% in July but a deposit of 25% was required to access this rate.
The latest CAFI suggests that house prices still need to fall by 15% to return to long run affordability, increasing to c.23% for first time buyers.

Mortgage approvals have recorded a succession of record lows, June's approvals were 36,000 which represented a 68% decline in the year and a 12% fall in the month. Seasonally adjusted mortgage approvals have fallen by 50% since January 2008.

Without an unlocking of the mortgage market and a return of buyer confidence it is difficult for us to see any positive catalysts which may firm the foundations of the housebuilders shares. Until such time we believe that the shares are vulnerable to reconfirmation of the dreadful market conditions.

[kiwi2007] 14/8/2008 12:32

Citi:

Full-year update points to 14% drop in volumes and 3% drop in price - The
volume picture is slightly weaker than we had expected and reflects ongoing tightness in mortgage availability coupled with recent uncertainty from stamp duty comments.

v Margins to drop by up to 3% - While it is hardly surprising to see a drop in margins, the scale is also slightly worse than the company had previously indicated. This is because of additional incentives used to limit the volume
decline in the last couple of months. Order book margins are not dissimilar to H2 levels.

v June and July reservations down 45% - which has taken the order book to a position of £370m. Our turnover estimate for FY 2009 is £802m. 62% of this is contracted.

v Balance sheet remains one of healthiest in sector - with gearing of c. 23% as the group has sat on its land purchases in H2. Group remains closely focused on its cash flow going into the new year. We expect consensus estimate cuts of c. 10% for 2008.

v Our cash-based method (DLV) points to a £10.00 valuation - and is our preferred valuation method given uncertainty over asset and profit-based measures.

[kiwi2007] 14/8/2008 12:32

Numis

Bellway's full year trading update is more downbeat than the IMS at the start of June and reflects tougher trading conditions in June and July. We are reducing 2009 estimates significantly to account for the lower growth but in our view Bellway still remains one of the most attractive stocks in the sector due to its strong balance sheet, above average trading and discount valuation. We reduce our target price from 1366p to 740p - putting the stock on 0.75 July 08 NAV.

Bellway's full year update shows conditioned weakened in June and July and accordingly we are reducing 2008 and 2009 estimates. 2008 pre-tax profit is reduced from £190.6m PBT to £162m and 2009 estimates from £125m to £50m. These forecasts assume a year on year reduction in private volumes of 40% and a slight
increase in social housing completions. Forward orders are in line with this view and stand at £370m, down 38% year on year.

Gearing at the year end stood at 23% (in line with forecasts) and given the limited land commitments the group has we would expect gearing to fall to 13-14% in 2009. Bellway does state that it is reviewing the carrying value of land however in our view any writedown will be small and not materially damage the NAV per share. No news on dividends but we are still of the view the group will honor the final dividend due to the
available resources at its disposal and also its strong track record in this regard.

We continue to see this as one of the most attractive housebuilders and whilst the estimate downgrade is substantial it still means Bellway is performing better than most of its peers despite trading on a lower valuation.

[outsizeclothes.com] 14/8/2008 08:24

Out (covered) @ £5.665, for a 78p profit.
May short any bounce above £6 again.

[rocketfuel] 14/8/2008 07:59

These figures for the most part are historic, a split of the last 4 months would be very interesting.

[outsizeclothes.com] 14/8/2008 07:42

Not good, but actually better than what I expected.
I'd expected the gearing to be higher, and for them to have taken a writedown on land. But the cancellation rate, esp for a company that sells so much to housing associations, is a serious problem for them.

[scruffydave] 14/8/2008 07:31

Rocket - seems to me that of course their land bank is worth less as an asset, but goign forward they will be picking up land cheaper for the next housing surge, so it just cancels itself out in the longer run.

[rocketfuel] 14/8/2008 07:23

Reservations down 45%, selling prices reduced and operating margin taking a hit.
Not pretty as could be expected, the point that i believe is more important are write downs. I think the wording here is the key "widespread" if they do not think writedowns will be widespread what do they think they will be in light of the market in general believing we are in for two more years of falling prices.

Are the Board saying the market will improve and their land bank will maintain its value acrosss the portfolio?

Have they been to a land auction recently, prices and interest are down heavily.

[scruffydave] 13/8/2008 20:10

WEll thats great. But what about tomorrow's results? any predictions?

[steeplejack] 13/8/2008 10:18

I thought the reason Bellway had been upgraded by Goldmans was because it had a relatively strong balance sheet and wouldn't need to have a fund raising.We'll see.

Group finance director Alistair Leitch said while there had been a sharp
decline in reservations and sales volumes in recent weeks, the group's balance
sheet and long-term financing requirements remains sound.
"There is no question of Bellway breaching or being even close to breaching
its banking covenants. The group is modestly geared - below 30 percent - and
we've plenty of headroom on the balance sheet to look at land purchases or even
acquisitions if we needed to," he told Thomson Financial News.

JUNE 2008

[outsizeclothes.com] 12/8/2008 16:12

The trading pattern today suggests
First: Market gets wind of deeply discounted rights issue.Shares drop rapidly.
Next: Brokers underwriting the rights see the fall and step in to plug a gap.
Next: Stability at a lower level.
Next: Shares fall again as brokers realise that the general market is set for a fall.

Predictions -
Tomorrow: Shares fall a bit in thin volume, unless brokers who are underwriting stick it out.
Thursday : Grim trading statement, rights + sharp fall to £5, but £5 holds as brokers rush out "Buy because funding/debt issues now resolved"
Friday: Shorts get really going, pushing price towards rights issue price.

[zimzoot] 12/8/2008 15:27

U.K. homebuilders fell after Dresdner Kleinwort analyst Alistair Stewart said their results could be ``the grimmest for decades'' and investors should abandon the stocks after their recent rally.

Persimmon, the No. 1 by market value, sank 1.1 percent to 406 pence. Bellway, a U.K. homebuilder aimed at first-time buyers, tumbled 3.9 percent to 622.5 pence

[outsizeclothes.com] 12/8/2008 13:11

I think that we could be looking at, say, 1 for 4 @ £4.50 ish, but fully underwritten, giving the underwriters room to short the stock.

[rocketfuel] 12/8/2008 11:36

The specific date set several weeks ago would lead you to believe something other than a trading update is to be announced. Whatever it is i don't believe it is going to be pretty.

[outsizeclothes.com] 12/8/2008 10:42

Did the market this morning get wind of a rights issue to be announced with the trading update on 14th ?