Bellway results launch shares to highest since start of 2022

Bellway (LSE:BWY) will be glad to see the back of this trading period and consign the numbers to history, although current trading seems to show a marked turn for the better.

Results for the six months to 31 July provide a number of areas for potential disappointment, although reaction has tended to gloss over what has already passed.

• Invest with ii: What is a Managed ISA? | Open a Managed ISA | Transfer an ISA

A lower starting order book and a particularly challenging first half led to revenue of £2.38 billion, a decline of 30.1% from the corresponding period. Housing completions fell by the same amount to 7,654 at an average selling price of £307,000, itself down from a previous £310,000.

Meanwhile, adjusted operating margin also felt the pressure of lower volumes, dropping from 16% to 10%, with sales incentives adding to the mix, while net cash of £232 million swung to net debt of £10.5 million. The net effect was that adjusted pre-tax profit plunged by 57.5% to £226.1 million.

Given the group’s policy on shareholder returns and to ensure adequate cover, the total dividend was more than halved from £1.40 per share to 54p, which reduces the projected yield to just 1.8%. Prudent though this move may turn out to be, dividend reductions are rarely well received and this particular cut reflects the difficult trading conditions which Bellway has had to endure.

It is unclear whether this backdrop led to a strategic turnaround earlier in the year. While the Barratt Redrow (LSE:BTRW) tie-up is now live, Bellway decided against its pursuit of Crest Nicholson Holdings (LSE:CRST), citing confidence in its own balance sheet and its ability to deliver volume growth in the years ahead.

• Your money and Labour’s first 100 days in power
• eyeQ: what the yield curve means for investors
• Sign up to our free newsletter for investment ideas, latest news and award-winning analysis

More positively, given current trading conditions, there may be some substance to this decision. Since the end of the reported trading period, the forward order book has grown to £1.43 billion from a previous £1.41 billion, which itself represented an increase of 18.4% on the previous year.

Private reservation rates per outlet per week are also showing a promising direction of travel, with an annual rate of 0.51 propelled by a second half return of 0.58, which has nudged up to 0.59 since the beginning of August.

Moderating inflation, lower interest and therefore mortgage rates has led to robust customer demand at present, leading Bellway to predict a material increase in volume output in the new financial year, including an increase to 8,500 housing completions, which would represent an 11% improvement from the current level.

At the same time, the levers which the group can pull are evident in terms of a strong land bank which exceeds 95,000 plots, with proposed government reforms to the planning system a likely catalyst for some of this volume to be unleashed.

The current path of interest rates and mortgage affordability are both potential positives, although the measures emanating from the impending Budget seem to have had a detrimental effect on consumer confidence in advance. The group is also edging towards a quieter time of year for house buying, although it expects its revenue in the current trading period to be skewed towards the first half as the current momentum continues.

• Insider: directors deal in Vistry shares, Greggs and AIM’s biggest stock
• 10 hottest ISA shares, funds and trusts
• ii Top 50 Fund Index: most-bought funds, trusts and ETFs in Q3 2024
• The Week Ahead: Bellway, Antofagasta, Rio Tinto, Whitbread

The initial share price reaction leans heavily to the glass half-full outlook which Bellway has described. The move follows a robust performance of late, whereby the price has risen by 40% over the last year, as compared to a gain of 19.3% for the wider FTSE250.

On balance, the market consensus of the shares as a 'cautious buy' reflects the fact that the group and indeed the sector may have turned the corner, although investors are not quite prepared as yet to enter the fray with all guns blazing.