Crest Nicholson chief executive John Callcutt has predicted that the continuing collapse in share prices will lead the City to take a second look at housebuilders, writes Mark Leftly.
Housebuilders were particularly hard hit by the weakened market, highlighted by last month's unprecedented 11-day fall in the stock exchange.

Last week, stockbroker Salomon Schroeder Smith Barney downgraded its expectations for the housebuilding sector, leading to a fall in the value of companies such as Westbury and Wilson Bowden.

Callcutt believes, however, that the sector will be able to demonstrate its business potential to investors.

The sector has a low price–earnings ratio – a measure of investors' confidence in future profitability – which suggests that the stock market lacks confidence in the sector's prospects.

Calcutt said: "According to the sector's PE ratio it should be a bloodbath, but that ratio is ridiculously low. We will show the City how well we weather bad markets, and from that I think the sector will be rerated."

John Messenger, vice-president of investment bank Morgan Stanley, said the market's opinion would not change until housebuilders showed they could sustain profitability after house price inflation falls.

He said: "Until it has proved its ability to manage its profitability through this period of high and unsustainable house price inflation, the industry is unlikely to be rerated."

Callcutt made his claim after Crest Nicholson released its latest annual results.

For the 12 months to 31 October, pre-tax profit was up 25% on the same period last year, at £63m. Turnover was 19% higher at £696.4m.

In the coming year, the housebuilder is to concentrate on building homes valued at £300,000-400,000 in the capital and the South-east. It is also looking to increase its build programme from 1900 in 2002 to 2700 this year.

At Crest Nicholson's annual meeting, shareholders approved the £9.2m management buyout of its construction division Pearce.

n Private housebuilder Cala announced a sharp fall in profitability in annual results to 30 June. Pre-tax profit fell 78% from £5.1m to £1.13m on decreased group turnover of £135.5m. Group turnover in the previous 12 months was £146.9m.

In his statement, chairman Geoff Ball said: "We are placing a strong focus on margin improvement and a longer landbank. I believe this is the route to add real value to the company."