Interactive Investor

Bellway reaps rewards, but end of support schemes loom

24th March 2021 10:36

Richard Hunter from interactive investor

The housebuilder has been carefully managed, but has unavoidable challenges to come.

Bellway (LSE:BWY) has continued to reap the rewards of careful management and a generally supportive housing market, according to its interim results today.

Of late, further certainty has come from the government in the form of it backing 95% loan-to-value mortgages and an extension to the stamp duty holiday.

Alongside the existing Help to Buy scheme, an ongoing shortage of housing supply and a low interest rate environment, housebuilders are being swept along by these tailwinds.

In addition, Bellway has a clear eye on the future, as evidenced by a recent land buying spree of 8,848 plots amounting to £453 million. The acquired sites were geographically spread, which could therefore benefit from sprawling demand away from conurbations as long commutes diminish following the rise of people working from home. At the same time, this lessens Bellway’s reliance on the Help to Buy scheme, which currently has a shelf life limited to 2023.

In the meantime sales grew by 11.6%, with record housing numbers achieved through a combination of higher volumes and an increase in average selling prices.

The balance sheet remains strong, with net cash of £346 million, while the outlook continues the momentum with an increase of 8.4% to the forward order book.

The reintroduction of a dividend is reflective of the company’s improving fortunes. While the current yield is just 1.5%, there is plenty of scope for further increases which could be weighted towards the second half of this year.

All is not plain sailing, however, and Bellway is mindful of the challenges to come. Pre-tax profit fell 4% in the period, due largely to an increase of cost of sales and a decrease in the gross margin of 2.3% to 20.8%.

Margin was hampered by Covid-19 adjustments and some cost inflation, although in the medium term the picture is expected to benefit from the roll-out of higher-value properties.

At the same time, while the housing market remains stable, the possibility of rising unemployment and the eventual removal of government-led support schemes will put additional pressure on the sector as a whole in due course.

For the moment, though, prospects and profits are vibrant in the sector, and Bellway is a player.

The share price has seen an increase of 78% over the last year, as compared to a rise of 51% for the wider FTSE 250.

The company remains on the fringes of inclusion in the FTSE 100 and its strategy of land acquisition for future profit sits comfortably with investors, with the market consensus of the shares as a strong ‘buy’ still in place.

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