ii view: progress at Bellway but shares still fall

First-half trading update to 31 January

• Build completions up 11.9% to 4,577 homes
• Private reservations up 18.9% from a year ago to 0.51 per outlet per week
• Forward order book valued at £1.31 billion, up from £1.01 billion this time last year
• Net debt of £8 million, down from net cash of £77 million

Guidance:

• Continues to expect full-year build completions of at least 8,500, up from 2024’s 7,654 builds
• Continues to expect average selling price of £310,000, up from 2024’s £307,909
• Continues to expect underlying operating margin approaching 11%, up from 2024’s 10%

Chief executive Jason Honeyman said:

"Bellway has delivered a strong first half performance in challenging market conditions. While mortgage interest rates have increased modestly since the autumn, customer demand has remained robust, and the Group has a healthy order book to support our targeted growth in volume output for the full year.

“The Group has a strong balance sheet and land bank, and we remain very well-positioned to capitalise on future growth opportunities while continuing to play an important role in meeting the growing need for new homes across the country."

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ii round-up:

Bellway (LSE:BWY) today detailed increased sale reservations during the early weeks of the current spring selling season, but also flagged the sensitivity of customer demand to mortgage affordability.

Customer reservation rates for the first half to 31 January rose to 0.51 per outlet per week, up from 0.43 in the same period last year. Build completions of 4,577 homes climbed from 4,092 a year ago although marginally missed City forecasts of 4,686. 

Shares in the FTSE 250 builder fell 5% in UK trading having come into this latest news down around a tenth over the last year. That’s similar to rivals Barratt Redrow (LSE:BTRW) and Persimmon (LSE:PSN) and in contrast to a 9% gain for the FTSE 250 index.

Bellway operates through 20 UK regional via its brands Bellway, Bellway London, and Ashberry. Management continues to expect build completions for the full year to late July of at least 8,500, potentially up from last year’s 7,654, and at an average sale price of £310,000 - up from 2024’s £307,909.

Bellway’s ongoing hope for a full-year adjusted operating profit margin of close to 11%, up from last year’s 10%, continues to fuel City estimates for a full-year adjusted pre-tax profit of £275 million – potentially up from last year's £226 million. 

A forward order book valued at £1.31 billion is up from £1.01 billion in late January of last year. Group net debt of £8 million sits against net cash of £77 million a year ago. 

Broker UBS reiterated its ‘buy’ rating on the shares post the update. First-half results are due 25 March. 

ii view:

Started in 1946, Bellway today employs over 2,500 people. Focused on traditional family housing outside of London and apartments within London, peers include Taylor Wimpey (LSE:TW.) and Berkeley Group Holdings (The) (LSE:BKG). 

For investors, a possible trade war and added tariffs to imported goods could raise inflation, causing the Bank of England to halt anticipated interest rate cuts. Although relatively small, net debt of £8 million sits against a previous net cash position. A forecast price/earnings (PE) ratio above the three- and 10-year averages may suggest the shares are not obviously cheap, while a forecast dividend yield of around 2.5% is below forecasts of over 4.5% at peers Persimmon and Taylor Wimpey. 

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To the upside, the recent cut to UK interest rates is likely to aid customer sentiment. An easing in planning regulations is being pushed by the government. A supportive land bank is held, while the previous acquisition of Redrow by Barratt Developments could trigger further sector consolidation.

On balance, and despite ongoing risks, a consensus analyst fair value estimate above £32 per share appears to offer grounds for cautious optimism about long-term prospects. 

Positives: 

• Hoped-for interest rate cuts
• Easing planning regulations 

Negatives

• Uncertain economic outlook
• Forecast dividend yield below some rivals

The average rating of stock market analysts:

Buy