ii view: Bellway looks to build on record land buying

Build plots bought at the pandemic peak and a forecast dividend yield of around 4%. Buy, sell or hold? 

Full-year results to 31 July 2021

• Revenue up 40% to £3.12 billion
• Pre-tax profit up 102% to £479 million
• Final dividend of 82.5p per share
• Total full-year payment of 117.5p per share, up from 50p in 2020
• Net cash of £330 million, up from £1.4 million in 2020

Guidance:

• Expects underlying operating profit margin to recover to 18% from 17%
• Expects to increase completions by around 10% to more than 11,100 new homes

ii round-up:

Founded in 1946, house-builder Bellway (LSE:BWY) today operates through more than 20 regional divisions across the UK. 

It employs more than 2,000 people and focuses on providing traditional family housing outside London and apartments within London.

For a round-up of these latest results, please click here.

ii view:

Bellway’s biggest region is the southern areas of the UK excluding London, generating half of 2021 revenues. Next, comes the North at 42% of revenues, followed by London at 8%. Bellway’s focus is on growing volumes, a strategy that it has pursued with success over time. It is currently targeting mid-term volumes of 16,000 to 18,000, up from 10,138 during this latest financial year 2021 just finished. Volume growth of 10% per annum is being targeted over the full years 2022 and 2023. 

For investors, elevated inflation and concern over rising interest rates are reasons to be cautious. Supply chain and intermittent labour shortages, given both Brexit and the continuing pandemic, need to be remembered. As does some curtailing of government assistance via a scaled back ‘Help to Buy’ scheme and the challenges of building under climate change requirements. 

More favourably, a record near 20,000 plots purchased over the last year offers the opportunity for build completion growth and a profit margin recovery in the years ahead. Rising build costs are being countered by rising selling prices, while an estimated future dividend yield in the region of 4% is attractive in the current ultra-low interest rate era. In all, and with the current consensus analyst estimate of fair value per share sat at £40.83, momentum appears to remain in Bellway’s favour. 

Positives: 

• Robust customer demand
• Attractive dividend payment (not guaranteed) 

Negatives

• Supply chain and labour challenges
• Reduced government house-buyer incentives

The average rating of stock market analysts:

Strong buy