HOW EXPOSED to London and the south-east do house builders need to be?
The Government's plan for denser, low-cost homes will do little for house builders, such as Bellway, that want to push up their operating margins.
Bellway has reduced its exposure in the region in recent months and this was one of the reasons why the firm emerged relatively unscathed from a bout of downgrades by broker Schroder Salomon Smith Barney.
SSSB said: 'Any housing downturn is likely to be exaggerated in London and the south but Bellway has protected itself from this risk.'
With sales rising 7 per cent to 2,470 in the six months to January 2003 at an average price of a quarter higher than a year ago, margins look likely to rise.
Brewin Dolphin forecasts that pre-tax profits at Bellway could top £150 million by next year, which would give the firm earnings per share of 93.7p.
This translates into a price/earnings ratio of 5.7, which at the current level looks cheap. But a low p/e ratio is not the only reason the shares look worth a punt.
Many analysts, such as SSSB, suggest that any house builders with a market capitalisation of £600 million or under - Bellway is valued at £500 million - should look for a takeover or merger.
Westbury and Bovis have already been touted as potential partners, which could translate into a healthy upturn for shareholders.