ii view: Bellway shares demolished by margin fears

First-half results to 31 January 

• Build completions up 2.7% to 4,702 homes
• Revenue up 6% to £1.52 billion
• Adjusted operating profit flat at £159 million
• Interim dividend up 9.5% to 23p per share
• Net debt of £72 million and up from £8 million a year ago

Guidance:

• Continues to expect profit for full-year 2026 of between £320 million and £330 million - a potential increase from last year’s £304 million

Chief executive Jason Honeyman said:

"While our industry continues to face several headwinds, we have seen an improvement in customer demand and reservations since the start of the new calendar year. 

“At this stage, the situation in the Middle East has not had a material impact on trading and, supported by our forward order book, we are on track to deliver FY26 underlying operating profit within the range of £320 million - £330 million.

“The ongoing conflict in the Middle East heightens the risk of both inflationary cost pressures and an impact to customer demand, and we have already seen volatility return to the mortgage market.”

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ii round-up:

Bellway (LSE:BWY) today lowered its expected annual operating profit margin, with the housebuilder flagging increased uncertainty about the outlook given the war in the Middle East and subsequent mortgage market volatility. 

The group now expects full-year profit margin of 10.5%, down from 11% at the start of the financial year, hindered by a mix of ongoing and existing build cost pressures and required increased sales incentives.  

Shares in the FTSE 250 company fell 11% in UK trading having come into these latest results down by close to a quarter so far in 2026. That’s similar to fellow housebuilders Persimmon (LSE:PSN) and Taylor Wimpey (LSE:TW.). The FTSE 250 index is down 6% year-to-date.  

Headquartered in Newcastle, Bellway operates across 20 regional divisions throughout the UK. Sales reservations of 0.47 per outlet per week for the first half to late January subsequently improved to a rate of 0.70 for February and early March, although those numbers were recorded largely before the start of military action in Iran. 

That early year improvement in demand now sees Bellway forecasting full-year build completions above its previous estimate of between 9,300 and 9,500 homes.

A forward order book of 5,311 homes as of mid-March is down from 5,582 homes at the same time in March 2025, but with the average selling price expected to increase to around £325,000, up from £316,412 in late July last year.

A 2.7% increase in build completions for the first half to late January to 4,702, and a near 4% increase in selling prices, helped offset a 0.5% fall in profit margin to 10.5%, leaving first-half adjusted operating profit little changed at £159 million. 

An interim dividend up 9.5% to 23p per share is payable to eligible shareholders on 1 July. Bellway continues to expect profit of £320-330 million in 2026 compared with last year’s £304 million.   

ii view:

Founded in 1946, Bellway today focuses on providing traditional family housing outside of London and apartments within London. Group brands are Bellway, Bellway London and Ashberry. The Ashberry brand is used on just over a tenth of active outlets, and typically on larger sites alongside the core Bellway brand, offering a choice of layouts and elevational treatments from the standard house type.   

For investors, a war in the Middle East and resultant soaring energy prices now generate high uncertainty regarding future inflation and required interest and mortgage rates. Raised energy prices could add further upward pressure on build costs such as the firing of bricks. Stretched UK government finances now offer reduced room for sector assistance, as seen in the past, while continuing US trade tariffs also potentially increase global inflation pressures. 

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More favourably, eased planning regulations under the current government should assist over the medium to longer term. The previous acquisition of Redrow by Barratt Developments could yet see further sector consolidation occurring at some point. Group net debt of £72 million continues to indicate a robust balance sheet, while a swift resolution to the war in the Middle East would be well received.

In all, a forecast dividend yield of over 3% does at least offer something for income investors, although others may decide to see how events both here and overseas unfold. 

Positives: 

• Attractive dividend yield (not guaranteed)
• Easing planning regulations 

Negatives

• Highly uncertain inflation and interest rate outlook
• Broadly increasing government taxes

The average rating of stock market analysts:

Buy