ii view: income play Bellway stays optimistic

Growing forward sales and an estimated dividend yield of over 5%. Buy, sell, or hold?

First-half results to 31 January

• Revenue up 3.5% to £1.78 billion
• Pre-tax profit up 9.8% to £327 million
• Interim dividend up 29% to 45p per share

Guidance:

• Expects full year underlying operating margin to be around 18.5% (31 July 2021: 17.0%)

Chief executive Jason Honeyman said:

“Customer demand for our high quality, family homes is strong across all our operating regions, with site visitor numbers and website traffic both ahead of last year. 

“The mortgage market is generally supportive and notwithstanding the recent, modest rises in interest rates and ongoing cost-of-living inflationary pressures, our mid-market product remains affordable in a historical context.”

ii round-up:

Founded in 1946, housebuilder Bellway (LSE:BWY) 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.

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

ii view:

Bellway's focus is on growing build volumes, a strategy it has pursued with success over time. A volume outcome of 11,100 homes is targeted for this current financial year to the end of July, rising to around 12,200 for the full-year 2023. That’s up from 10,138 over its last full financial year 2021. 

A mid-term volume goal of over 16,000 per annum sits on its agenda.

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For investors, elevated inflation and a cost-of-living crisis could impede buyers' spending ability going forward. Interest rates are rising, the cost of raw materials is on the up, while supply chain challenges have not gone away. Costs to comply with new government fire rules for both Bellway and the wider industry also need to be considered.   

More favourably, forward sales of almost 7,500 homes at a value of just over £2.2 billion offers reassurance. Rising build costs are being countered by rising selling prices while costs and provisions to cover expected fire regulation costs are being provided for. In all, and with the shares currently sat on an estimated future dividend yield of over 5%, income seekers are likely to stay interested. 

Positives: 

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

Negatives

• Rising costs
• Uncertain economic outlook

The average rating of stock market analysts:

Strong buy