Friday, June 18, 2010

BWY - Bellway - House builder

I expect house builders are not at the top of everyone's mind, so I thought it might be interesting to dig out a nice little builder for you.

BWY (Bellway) is the 4th largest house builder in UK. I'm taking a broad brush approach here in my analysis of its fair value.

Current share price: 639p
Mkt cap: £772m
yield: 1.5% OK, small yield, but it does get better.
Interest cover 2.88 Adequate, especially given the depressed earnings of the company

It has a PTB of 0.76. I've looked through the historic averages for PTB, and it's 1.2. So, if you were to value the shares on a PTB basis, that would suggest at least a 50% increase in the share price is possible.

Current PE is 26. That looks a lot, but earnings are depressed. So we have to come up with an alternative way of measuring PE. Looking back at the historic figures, I find that the average PE for the company is 11, and it's average adjusted EPS is 95. Multiply the two, and you get a share price of £10. So again, this suggests at least a 50% increase is possible.

Analyst earnings forecast are expected to increase robustly in next 2 years.

Trying to value the company in terms of turnover, the turnover for the year was £683m. The average turnover for tha last 10 years was £975m. So again, this suggests about a 40% increase in share price is possible.

In a management statement on 15 June, covering the period 1 feb 2010 to 15 jun 2010, we get such snippets as: "slight reduction in both site visitor levels and weekly sales rates. ... the original annual sales target of achieving last year's volume is secure ... Operating margins on current reservations have improved ... Bellway remains well positioned to continue to deliver earnings growth."

So, sounds pretty good to me.

One negative thing I found was looking at their website (it's actually quite simple and effective). They advertise a try before you buy up to 12 months rent free. I'm not sure that I like it that they have to give stuff away.

I notice that the discussion board hasn't been posted to since 2008. I'll take that to be a good sign.

The company looks cheap on fundamentals, and the share price needs to increase by 50% to attain fair value. Exactly when that will happen, or if economic conditions deteriorate, I couldn't say. Footsie currently stands at 5250.84

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