Shares I love: Bellway

"UK housebuilders are seen by many investors as poster children for bad behaviour," he says. "Any money made during the good times is duly squandered when the market turns. This pattern of behaviour was confirmed during the financial crisis when savage land writedowns and rights issues became the norm. But the sector has confounded the cynics this year and, although it may be due a pause in the short term, it appears unlikely that it is going to return to its bad habits any time soon.

"Housebuilders are ultimately large sausage machines: they put land in the front end and after some processing it comes out on the opposite side. Land pricing is therefore critical to housebuilders' profitability. The current market is incredibly benign and likely to remain so - smaller competitors can't access finance while the listed sector is largely focused on returns rather than growth.

"Bellway, the UK's fifth-largest housebuilder, trades at an unwarranted discount to the wider sector. While some of its peers have sought to limit volume growth to focus on returning cash to shareholders, Bellway is looking to increase the number of homes it builds by around 30 per cent over the next few years from its current figure of around 7,700. This is a sensible strategy designed to take full advantage of the current operating environment.

"Bellway's management has historically been viewed as one of the more conservative teams in the industry and has an excellent track record of delivering its stated objectives. The company's recent trading update highlighted both the strong trading conditions and the tight grip that has been maintained over construction and administration costs. As Bellway expands we expect its improving cash-flow profile to be accompanied by increased returns to shareholders."

The last IC recommendation on Bellway's shares was Buy, 2,325p, 11 June 2015. As at 31 July the shares were trading at 2,370p.