ii view: housebuilder Bellway makes new records

Shares in this FTSE 250 company are down by around 30% year-to-date and sit on an estimated future dividend yield of over 5%. We assess prospects.  

Full-year trading update to 31 July

• Revenue up 13% to over £3.5 billion
• Completions up 10.5% to 11,198 homes
• Underlying operating profit margin of around 18.5%, up from 17%
• Reservation rate up 6.9% to 218 per week

Chief executive Jason Honeyman said:

"I am delighted that Bellway has retained its status as a five-star homebuilder for the sixth consecutive year, reflecting our focus on build quality and customer satisfaction.  

"Looking ahead, our sizeable forward order book and continued strong investment in land puts the Group in an excellent position to deliver another record year of volume output, notwithstanding the ongoing challenges in the planning system and upcoming end of the Help-to-Buy scheme.  In addition, a robust balance sheet continues to provide strategic flexibility and a platform for our long-term strategic priorities of volume growth and value creation."

ii round-up:

Housebuilder Bellway (LSE:BWY) today reported both record build completions and revenues as average selling prices rose, and demand remained robust. 

Housing completions rose 10.5% to 11,298, with growth in revenues of 13% to over £3.5 billion aided by a 2.6% rise in the average selling price to £314,400. 

Bellway shares rose marginally in early UK trading having come into this latest announcement down by around 30% year-to-date. Shares for larger rivals Persimmon (LSE:PSN) and Barratt Developments (LSE:BDEV) are both down by 35% during 2022, while the FTSE 250 index has fallen by close to 15%.

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Sales reservations for Newcastle headquartered Bellway remained robust, rising 6.9% to 218 per week. The value of its forward order book rose 4.5% year-over-year to £2.11 billion. 

Management repeated its ambition to deliver an annual output of around 12,200 homes for the year ending 31 July 2023, representing volume growth of around 20% over a two-year period.

Broker UBS retained its ‘buy’ rating on the shares following the results, forecasting a 2% upgrade to consensus analyst estimates of full-year profit.

Annual results for the 12 months ending June 2022 are scheduled for 18 October.  

ii view:

Started in 1946, Bellway 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.

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For investors, rising interest rates to quell elevated inflation and a predicted recession by the Bank of England offer a tough backdrop for new home buyers. Supply chain challenges remain, while costs for Bellway to comply with government fire safety rules currently total nearly £500 million.     

More favourably, customer demand to date remains robust, investment in new land plots is ongoing, while elevated build costs are offset by rising selling prices. In all, and while some caution looks sensible given a predicted UK recession, an estimated future dividend yield of over 5% looks to offer reason for income investors to remain patient.  

Positives: 

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

Negatives

• Rising costs
• Uncertain economic outlook

The average rating of stock market analysts:

Buy