ii view: Bellway sales fall as Covid casts dark shadow

Operations are restarting but sales are likely to stay constrained until Covid restrictions lift further.

Trading update  

Chief executive Jason Honeyman said:

"Our priority remains the health, safety and wellbeing of our colleagues, customers and subcontractor workers.  With this in mind and following updated Government guidance with regards to restarting the housing market, we have carefully and gradually recommenced onsite construction and sales activity in England and Wales, whilst introducing strict social distancing requirements. This measured approach has enabled us to continue serving our customers and has facilitated the safe return to work for many of our employees."

ii round-up:

Newcastle-upon-Tyne headquartered housebuilder Bellway (LSE:BWY) has recommenced construction activity on around 230 sites, albeit at reduced productivity levels given Covid-19 safety procedures. 

All of its sales offices were back open as of 1 June with property viewings made by appointment only.  

Between 1 August last year and the end May this year it sold 6,721 homes, down by just under 1,000 homes from the prior year period, hindered by the pandemic. Forward sales currently stand at 6,038 homes worth £1.57 billion, down from a value of £1.64 billion this time last year. 

Bellway shares fell by more than 5% in afternoon UK trading, in line with rivals such as Persimmon (LSE:PSN), Barratts (LSE:BDEV) and Taylor Wimpey (LSE:TW.). Year-to-date, Bellway shares are down by around a quarter. 

Founded over 70 years ago, Bellway today operates across more than 20 divisions across England, Scotland and Wales. Activity in Scotland remains limited in line with Scottish government guidance. 

Pricing for its properties has remained firm, with the reopening of its sales offices leading to a gradual pick-up in customer interest. But management still expects year-on-year sales activity to be severely constrained until a time when lockdown restrictions are further lifted.

Like rivals, dividend payments are currently suspended to conserve cash. A decision regarding the half year payment has been postponed until the outlook becomes clearer. 

It currently has bank borrowing facilities of £545 million, along with a currently undrawn balance of £300 million via the Bank of England’s Covid emergency facility.  Group net debt stands at £157 million, down from £261 million a year ago.

ii view:

Bellway is currently rolling out its 'Artisan Collection' range, enabling further long-term cost savings through standardisation. The operating profit margin during the first half to the end of January moderated to 19.3% from 21.5% in 2019, aided in 2019 by the unusually high selling price and gross margin contribution from its Nine Elms, London Battersea development. 

More generally, Bellway remains a major beneficiary of the government’s Help to Buy scheme. Less than 3% of its first half completions were above the scheme’s threshold of £600,000. 

For investors, and like rivals, the loss of the dividend payment is a significant blow. Housebuilders have provided a key area for investors seeking dividend returns in recent years. The level of outlook uncertainty given Covid-19 also still leaves management lacking sufficient confidence to offer financial estimates for the full-year.  But operations are now reopening and a return to 'normal' life for the housing market is seen as critical by government in fostering economic growth. For now, while demand for housing persists, investors will want further evidence of  a wider post-lockdown recovery to boost confidence. 

Positives: 

• Restarted operations following Covid-19
• Reduced group debt

Negatives

• Shareholder returns suspended under Covid-19
• Sales down year-over-year

The average rating of stock market analysts:

Strong buy