ii view: Bellway expects to keep dividend unchanged

Shares for this FTSE 250 housebuilder are down by a fifth over the last month and sit on an attractive estimated future dividend yield. Buy, sell, or hold?

Second-half trading update to 4 June

• Forward order book of £1.71 billion, down from £2.4 billion
• Net cash of £42 million, down from £160 million a year ago

Guidance:

• Expects the overall average selling price be around £300,000, down from the prior year’s £314,399 
• Continues to expect to maintain the total dividend for financial year 2023, in line with the prior year payment of 140p per share

Chief executive Jason Honeyman said: “While customer interest is currently healthy, the Board remains mindful that cost-of-living pressures and the uncertain path of future interest rates could impact housing demand. Notwithstanding this, Bellway’s experienced teams, strong balance sheet and high-quality land bank, position the group well to successfully navigate changing market conditions and continue to play an important role in increasing housing supply in the years ahead.”

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ii round-up:

Headquartered in Newcastle, housebuilder Bellway (LSE:BWY) operates through 19 regional divisions across the UK. 

Its brands are Bellway, Bellway London and Ashberry. 

It employs more than 2,000 people and focuses on providing traditional family housing outside London and apartments in London.

For a round-up of this latest trading update announced on 13 June, please click here.

ii view:

Started in 1946, today the FTSE 250 mid-sized housebuilder competes against rivals including Vistry Group (LSE:VTY), Redrow (LSE:RDW), Barratt Developments (LSE:BDEV) and Taylor Wimpey (LSE:TW.). Build volumes for the current year to the end of July are expected by management to come in at around 11,000 homes, broadly in line with the 11,198 constructed during the full year 2022 and up from 2021’s 10,138 homes. Group strategy includes growing its volume of builds per year over the long term. 

For investors, rising interest rates feeding into higher mortgage borrowing costs are now raising affordability challenges for customers. Mortgage availability has reduced as lenders have pulled products, government aid in the form of the Help-to-Buy scheme has now expired, while build cost inflation persists. 

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On the upside, improved customer demand over the spring was seen compared to the final quarter of 2022. Selling prices over the full year are expected to hold relatively firm, some easing in cost pressures may occur as industry demand curtails, while management continues to underline its strong balance sheet with net cash of just over £40 million held. 

For now, and while room for a good dose of caution exists, an estimated future dividend yield of 7% is likely to keep income investors patient. 

Positives: 

• Forward order book of 6,172 homes or £1.71 billion in value
• Attractive dividend payment (not guaranteed) 

Negatives

• Elevated costs
• Uncertain economic outlook

The average rating of stock market analysts:

Buy