ii view: Bellway flags weak demand and a move to cut jobs

Full-year trading update to 31 July

• Expects revenues of around £3.4 billion, down from last year’s £3.52 billion
• Reservation rate down 28% to an average of 156 per week (2022 - 218)
• Expects the adjusted operating profit margin to be around 16%, down from 2022’s 18.5%
• Year-end order book value of £1.19 billion, down from last year’s £2.1 billion

Guidance:

• 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:“Bellway has delivered a resilient performance, with volume output and housing revenue in line with expectations and supported by the strength of our order book at the start of the 2023 financial year.”

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ii round-up:

Housebuilder Bellway (LSE:BWY) today flagged a weak trading environment in June and July with build completions expected to fall materially in the year ahead and job cuts being made to help protect financial resilience. 

Customer reservations for the year to the end of July dropped by 28% to an average of 156 per week with the Newcastle headquartered builder citing both the sharp increase in mortgage borrowing costs and the end of the government’s Help-to-Buy scheme in March as factors behind the fall.

Shares for the FTSE 250 company fell by 2% in UK trading having come into this latest news down around 3% over the last year. That’s similar to shares of rivals Barratt Developments (LSE:BDEV) and Taylor Wimpey (LSE:TW.) and broadly in line with a 5% fall for the 250 index itself over that time. 

Bellway operates through 19 regional divisions across the UK with its brands being Bellway, Bellway London, and Ashberry.

Revenues for the year to the end of July retreated 3.4% to £3.4 billion with the adjusted operating profit margin coming in at around 16% compared to 18.5% the year before. 

Total build completions eased to 10,945 from last year’s 11,198 as the average selling price retreated to £310,000 from a previous £314,399.

Year-end net cash of £232 million was marginally down from the prior year’s £245 million, with management reiterating its expectation to maintain the total dividend for the year 2023 at 140p per share, unchanged from the prior year. 

Broker UBS reiterated its ‘buy’ rating on the shares based on valuation grounds. 

Full-year results are scheduled for 17 October.

ii view:

Started in 1946, Bellway is today focused on providing traditional family housing outside London and apartments in London. Competing against rivals such as Vistry Group (LSE:VTY) and Redrow (LSE:RDW), its strategy includes increasing its build volumes per year over the longer term.  

For investors, heightened interest rates have fed into higher mortgage borrowing costs, raising affordability challenges for customers. Added buyer incentives will be squeezing the profit margin, government aid in the form of the Help-to-Buy scheme has expired, while build costs remain elevated. 

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More favourably, a strong focus on costs persists with job losses now being made. Selling prices year-over-year have stayed relatively resilient, some easing in cost pressures has occurred as industry demand for goods such as bricks has eased, while management continues to underline its strong balance sheet given continued net cash held.  

In all, and while room for caution persists, an estimated future dividend yield of around 6% is likely to keep income investors at least  patient.  

Positives: 

• Ongoing share buyback programme
• Attractive dividend payment (not guaranteed) 

Negatives

• Elevated costs
• Uncertain economic outlook

The average rating of stock market analysts:

Buy