ii view: strong demand and record investment at Bellway

A forward order book approaching £2 billion and net cash held. Buy, sell or hold?

Trading update from 1 February to 6 June

• Average reservations per week up 51% to 239 per week
• Net cash of £408 million, up from net debt of £157 million as of 31 May 2020 
• Order book up 20.5% to £1.89 billion

Chief executive Jason Honeyman said:

"Demand for our high-quality new homes continues to be strong and customer confidence throughout the wider housing market is resilient.  Customer satisfaction is high and our recently launched "Customer First" programme will help to improve quality further and will build upon our continued success as a five-star home builder.

ii round-up:

Housebuilder Bellway (LSE:BWY) today flagged strong customer demand for its new builds as the market recovered from significant pandemic disruption suffered the same time last year.  

Average weekly reservations rose by 51% to 239 per week in the approximate four-month trading period to 6 June, with the average selling price expected to rise to £300,000 from management’s prior estimate of £293,000.

Bellway shares were little changed in UK trading, having risen by more than 75% since pandemic market lows back in March 2020. Shares for larger rivals Persimmon (LSE:PSN) and Barratt Developments (LSE:BDEV) are both up by over 85% during the same time. 

Bellway’s forward order book climbed by just over a fifth to £1.89 billion, made up of more than 6,700 reserved new homes. Completions for the full year are expected to be around 10,000 builds, up from a pandemic disrupted 7,522 homes in its last financial year to the end of July 2020. 

Record group investment in land purchases had been made during the period, with nearly 16,000 plots contracted since early August 2020 and at what management believed to be attractive rates of potential return.

Cash held totalled £408 million, in contrast to a position of net debt of £157 million as of 31 May last year. The update comes just a week after the latest Halifax house price survey saw homes in May hitting yet another record high. 

ii view:

Founded in 1946, housebuilder Bellway today operates through more than 20 regional divisions across the UK. It employs over 2,000 people and focuses on providing traditional family housing outside of London and apartments within London. It has been busy rolling out its 'Artisan Collection' standard house type range, enabling further long-term cost savings through standardisation. 

For investors, both a scheduled ending of the current stamp duty holiday and changes to reign in the ‘Help to Buy’ scheme could both have some dampening impact on future buyer demand. Broader investor concerns regarding a rise in inflation following significant central  bank action post the pandemic also ask questions of future interest rate policy.  

But a previous restarting of dividend payments and a 20.5% rise in the forward order book give confidence in the outlook, as does net cash of over £400 million. Successive governments have shown strong appetite to assist the industry with a previously announced 95% mortgage guarantee scheme offering further evidence. In all and sat on an estimated dividend yield of over 3%, momentum looks to remain in Bellway’s favour.

Positives: 

• Robust customer demand
• Restarted dividend payment

Negatives

• A reining in of government house buyer incentives
• Dividend payment reduced

The average rating of stock market analysts:

Buy