Companies: BWY   

Newcastle-based Bellway is the UK's fifth biggest housebuilder. In common with its competitors, it commands a lowly rating. But Bellway is arguably a higher quality operation than most and deserves to trade at a premium not a discount to the sector average.

To be on a par with other builders, the shares should be trading at 323p. Analysts at Credit Lyonnais Securities say their target price is 380p as builders are generally undervalued and Bellway is better than most. A year ago, the shares peaked at 440p - but that was before the jitters over rising interest rates.

But Alan Robson, Bellway's finance director, actually welcomed the last rise in interest rates - to 6 per cent. 'It was a positive move for builders. The Bank of England is making sure the market stays stable. We do not want a boom-to-bust situation again'.

He insists galloping price rises, particularly in the south, have slowed down. In the first half of the current year, the company sold 2,197 homes, an increase of 9 per cent on the same period last year. But the average price was 19 per cent higher, at £106,000. That boosted sales, which were 38 per cent higher, at £249 million, and margins. Profits expanded 43 per cent to £30.4 million.

The forward order book is in fine fettle, totalling over £350 million or seven months sales. The land bank is also strong. Bellway is sitting on 17,400 plots with planning permission - which will last four years at the current rate of utilisation.

The company also has an excellent strategic land bank (where planning permission is awaited), with zoned land options such as the Thames Gateway where the Government plans a large number of new houses.

Bellway's secret is tight financial control over sub-contractors and smart marketing and design. The company has proved resilient when the economy has turned down in previous cycles, suffering smaller profit setbacks than competitors. 'We match design to local and regional styles', says Robson.

Bellway is also in tune with the Government policy of building more homes on brown field sites with hundreds of homes being built in London, Cardiff, Birmingham, Sheffield, Manchester and Glasgow.

Buying any housebuilder at present is a bet on the economy as much as on the quality of the company. If you believe the stop-go cycle is a thing of the past, or at least the severity of the cycle has been lessened, then housebuilders' shares - now the most lowly-rated sector - deserve a punt. Bellway looks the pick of the crop.

For figures, see text