Interactive Investor

ii view: Bellway builds on robust demand

23rd June 2022 15:52

Keith Bowman from interactive investor

Shares for this FTSE 250 housebuilder are down by more than a third year-to-date. Buy, sell, or hold? 

Trading update from 1 February to 5 June

  • Average reservations per week of 253, up from 239 in 2021
  • Order book up 27% to £2.4 billion from early June 2021

Guidance:

  • Continues to expect full year underlying operating margin to be around 18.5% (2021: 17%)

Chief executive Jason Honeyman said:

"Bellway has delivered another strong trading performance and despite the wider macroeconomic uncertainty, the Group continues to perform well.  

"The positive sales market and the further investment we have made in land provides a strong platform to enable the Group to continue its growth strategy in the years ahead."

ii round-up:

Established in 1946, housebuilder Bellway (LSE:BWY) today operates through more than 20 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 this latest trading update, please click here.

ii view:

Headquartered in Newcastle, Bellway continues to focus on growing its build volumes. A volume outcome of 11,100 homes is targeted for this current financial year to the end of July, rising to around 12,200 for the full-year 2023. That’s up from 10,138 over its last full financial year 2021. 

The FTSE 250 company's mid-term volume goal is for over 16,000 per annum.

For investors, 40-year high inflation and a cost-of-living crisis for consumers potentially hinder the buying ability of customers going forward. Numbers of customers gaining assistance from the ‘Help-to-buy’ scheme has been reducing, while the Bank of England is expected to raise interest further in its quest to quell inflation. Supply chain challenges also remain, while costs for Bellway to comply with new government fire rules now total nearly £500 million.    

On the upside, demand to early June has remained robust with forward sales of £2.4 billion offering reassurance. Elevated build costs are being countered by rising selling prices, while required new land plots continue to be acquired. On balance, and while some caution looks sensible given heightened consumer headwinds, a forecast future dividend yield of over 6% should offer income investors reason to stay patient.  

Positives: 

  • Robust forward sales
  • Attractive dividend payment (not guaranteed) 

Negatives

  • Rising costs
  • Uncertain economic outlook

The average rating of stock market analysts:

Buy

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