ii view: housebuilder Bellway still focused on shareholder returns

Launching a new share buyback programme and offering an attractive dividend yield. Buy, sell, or hold? 

First-half results to 31 January

• Revenue up 1.6% to £1.81 billion
• Adjusted pre-tax profit down 5% to £312.1 million
• Interim dividend unchanged at 45p per share
• Net cash up 49% to £292 million

Guidance:

• Expects to maintain the full-year dividend at a total of 140p per share

Chief executive Jason Honeyman said:

"Bellway has delivered another strong performance, notwithstanding the challenging operating and trading conditions in the period.  We have been encouraged by the moderate, yet sustained improvement in reservations since the start of January 2023.

"Bellway's experienced team has a proven ability to adapt to an evolving economic backdrop.  The proactive expansion of our land bank in recent years has provided vital strategic flexibility and our disciplined approach to capital allocation is reflected by the £100 million share buyback announced today.  The Group has a robust balance sheet with strong cash resources and, combined with our strategic land holdings, Bellway has an excellent foundation to deliver long-term returns for shareholders."

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ii round-up:

Started in 1946, housebuilder Bellway (LSE:BWY) today operates through 19 regional divisions across the UK. 

Its brands are Bellway, Bellway London and Ashberry. 

It employs over 2,000 people and focuses on providing traditional family housing outside of London and apartments within London.

For a round-up of these latest results announced on 28 March, please click here.

ii view:

Headquartered in Newcastle, 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.). Management expects build volumes for the current year to the end of July to come in at around 11,000 homes, broadly in line with the 11,198 constructed in 2022 and up from 10,138 homes the year before that. Group strategy includes growing its volume of builds per year over the long term. 

For investors, rising interest rates feeding into higher mortgage costs now offer affordability challenges for customers. Government aid in the form of the Help-to-Buy scheme has also expired, build cost inflation approaching 10% is offering headwinds, while funds put aside to address previous cladding issues totals almost £570 million. 

On the upside, some improvement in customer demand during the early weeks of 2023 was seen compared to the final quarter of calendar year 2022. A landbank of over 100,000 plots leaves Bellway only investing in land selectively, saving it cash. Selling prices have also remained robust, cost savings continued to be pursued, while a broader shortage of energy efficient houses is expected to underpin longer-term demand. 

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On balance, with the consensus analyst estimate of fair value sat at over £26 per share, a forecast dividend yield of over 6%, and at a low point in the cycle, grounds for patience look to persist.  

Positives: 

• Forward order book of 5,842 homes or £1.6 billion in value
• Attractive dividend payment (not guaranteed) 

Negatives

• Elevated costs
• Uncertain economic outlook

The average rating of stock market analysts:

Buy