Investors responded positively to housebuilder Bellway’s (BWY) latest trading update, chasing the shares up 4% to £29.52 after a month-long decline brought about by government demands for developers to stump up billions to rectify cladding issues.
The firm said market conditions and customer confidence were strong in the six months to January and stuck to its forecast of a 10% increase in output this year.
STRONG DEMAND
Underlying demand for new housing showed no sign of slowing in the first half, with the rate of private reservations up 3.8% to 162 per week and overall reservations up 5.8% to 202 per week.
A total of 5,694 new homes were completed in the first six months, a new record and ahead of the same period the previous year which benefitted from a surge in pent-up demand as lockdown restrictions were lifted.
Average selling prices rose 2.8% to almost £312,000 and are expected to remain above £300,000 for the full year, marking an upgrade to previous guidance due to a better mix of price and house type.
The firm also forecast an increase in its operating margin for the full year from 17% to 18% on the back of higher selling prices and better cost control even though it faces labour, material and fuel shortages.
BULLISH OUTLOOK
Chief executive Jason Honeyman was upbeat about the outlook for the rest of this year and for next year: ‘We enter the second half of the financial year with a strong order book and a backdrop of ongoing, positive trading conditions. Going forward, Bellway is on track to deliver its target volume growth of around 10% this financial year and further growth to around 12,200 homes in financial year 2023.’
The company’s forward order book is 12.5% higher than this time a year ago at 6,628 homes and almost 20% higher by value at £1.94 billion.
The group has continued to invest in land for new housing with 8,660 plots contracted in the half year, a similar amount to last year, across 45 sites.
WELL CAPITALISED
At the end of January, the firm’s net cash amounted to £196 million, giving it ‘significant financial resilience’ and the ability to continue investing in land for future building.
As regards the government’s announcement that the developers should meet the cost of rectifying cladding on high-rise blocks, which it estimates could be as much as £4 billion, Bellway has already set aside £164.7 million to deal with legacy building safety issues including a provision for blocks in the 11 metre to 18 metre category.
The firm said it shared the government’s view that residents shouldn’t have to bear the costs of correcting dangerous buildings and it would ‘engage positively to help establish a workable, industry-wide solution’.
