- Revenue fall smaller than feared
- Healthy rise in year-end order book
- Company eyes return to growth in 2025
Housebuilder Bellway (BWY) suffered a 30% slump in housing completions during the year to 31 July 2024, one marred by more expensive mortgages, property market softness as well as significant build-cost inflation.
Yet shares in the Newcastle-headquartered builder bounced 3% higher to £27.32 as its drop in annual revenue proved less than feared and the firm offered up a brighter outlook for the housing sector, which should benefit from the Bank of England’s recent base rate cut.
Bellway said it was encouraged by the new UK government’s plan to increase the supply of homes across the country and reform the planning system.
The FTSE 250 company also highlighted improving confidence from home buyers thanks to moderating mortgage rates, low inflation and rising wages.
ANNUAL OUTTURN BETTER THAN FEARED
Bellway delivered a year-on-year drop in housing revenue from the best part of £3.4 billion to over £2.35 billion, better than the £2.27 billion the market was anticipating.
Housing completions plunged 30% to 7,654 homes, but this fall was widely expected and the final figure was actually a smidgeon ahead of Bellway’s own guidance, while the 0.7% softening in the average selling price to £308,000 was also ahead of estimates.
Bellway flagged a dramatic drop in its underlying operating margin from 16% to just 10%, well below a typical 18% in ‘normal’ trading conditions, although the company stressed year-end net debt was modest and in line with forecasts at £10 million.
WHAT DID THE CEO SAY?
Chief executive Jason Honeyman explained: ‘While a lower starting forward order book drove a reduction in volume output, customer demand during the year has benefited from a moderation in mortgage interest rates which has helped to ease affordability constraints and supported an increase in reservations.’
He added: ‘The improving trading backdrop, combined with the strength of our outlet opening programme, has generated healthy growth in the year-end order book. As a result, we are in a strong position to return to growth in financial year 2025 as previously guided.’
EXPERT VIEWS
AJ Bell investment director Russ Mould observed that Bellway’s order book is looking healthier than it did a year ago and the company now hopes to return to growth in the current financial year, buoyed by planning system reforms.
‘Notably, the company has been active in land buying – a leading indicator of housing completions,’ said Mould.
‘How profitable this growth is will be crucial to winning investors over with a long way to go for margins to reach the levels they were at in 2022. There will be some questions about the deal to acquire Crest Nicholson (CRST) and whether the complications of integrating it into the wider group will help or hinder the recovery process. The acquisition, while proving relatively protracted, looks likely to go ahead with both parties having just agreed an extension to the offer period to allow the final details to be ironed out.’
Quilter Cheviot property analyst Oli Creasey commented: ‘What is encouraging is that conditions have improved in the second half of the financial year and the suggestion is that Bellway, and the housing market generally, is through the very worst trading period.
‘Bellway expects to return to growth in 2025, however, the big question will be “how fast?”. Having sold over 11,000 homes at an 18.6% margin in 2022, the company has a long way to go to return to this level of trading and will likely take multiple years to get there.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Ian Conway) own shares in AJ Bell.
