ii view: Bellway hopes to build 25% more homes this year

Demand is broadly robust but both Covid and Brexit uncertainties overhang the housebuilding sector. 

Trading update for 1 August to 29 November

• Forward sales up 19% to £1.77 billion
• Full-year housing completions expected to rise by around 25%
• Net cash of £243 million

Chief executive Jason Honeyman said:

“Bellway is in a robust position and notwithstanding the recent widespread ‘lockdown’ restrictions throughout the country, sales demand is encouraging, and the order book is strong.  We have substantial cash resources, considerable ability to continue investing in land and with our solid operational structure, we are determined to return the Group to its strategy of delivering long-term and sustainable growth.”

ii round-up:

In an update for the first four months of its financial year ending 31 July 2021, Newcastle headquartered housebuilder Bellway (LSE:BWY) forecast a 25% jump in home completions, supported by robust consumer demand and ongoing government assistance initiatives. 

Sales reservations averaged 210 per week in the 17 weeks to the end of November, up 6% from the comparative period in 2019. Forward sales are up by nearly a fifth to over 6,100 homes or £1.77 billion in value. 

Bellway shares were little changed in UK trading, having fallen by over a quarter year-to-date. Shares for smaller rivals Redrow (LSE:RDW) and Crest Nicholson (LSE:CRST) are down by around a third in 2020. Shares of the biggest player by stock market value Persimmon (LSE:PSN) are down by less than 10%.  

However, sales in November slowed to an average of 164 per week, down from a 2019 comparative 233, given the reintroduction of wide government ‘lockdown’ measures. But visits to its website during the period were significantly higher, suggesting strong underlying customer sentiment.

Group cash strengthened to £243 million from under £2 million back at the end of July, aided by more conservative land buying and a halving of the 2020 final dividend payment to 50p per share. 

A first-half trading update is scheduled for 9 February. 

ii view:

Bellway has 22 regional divisions across the UK and capacity to build around 13,000 units a year. First-time buyers make up just over 40% of its customers, of which 36% use Help to Buy schemes. Around a third are second-time buyers and the remainder come from housing associations. 

For investors, and like rivals, the unknown impact of a ‘no deal’ Brexit cannot be forgotten. Potentially reduced international buyer interest in London could have a ripple out impact on the regions. The Bank of England has also expressed its concern on the possible hit from Brexit on the UK housing market. That said, the UK government only recently underlined its desire to continue supporting housing, given stamp duty concessions. A return to dividend payments has been made, albeit at a rebased level, while an estimated dividend yield of over 3% is not insignificant in the current ultra-low interest rate environment. For now, some investors are preferring to reassess prospects early in 2021 following the current Brexit deadline. 

Positives: 

• Robust customer demand
• Recommenced dividend payment

Negatives

• Brexit and Covid outlook uncertainty
• Dividend payment reduced

The average rating of stock market analysts:

Buy