- Growth in order book reassures
- Top performer in FTSE 250 index
- Rally broadens to other builders
Tyne and Wear-based housebuilder Bellway (BWY) pleased the market with its outlook for ‘strong multi-year growth’ despite a drop in revenue and completions in the year to July.
The shares climbed as much as 280p or 9% to a new 12-month high of £33.34 before settling back at £32.62 for a gain of 210p or almost 7% by mid-morning and lifted shares of other housebuilders such as Barratt Redrow (BTRW), Persimmon (PSN) and Taylor Wimpey (TW.).
‘RESILIENT PERFORMANCE’
While Bellway’s results for the year to July weren’t much to write home about – a 30% fall in both completions and revenue – the firm delivered what it called ‘another resilient performance’ in a challenging market.
Completions were 7,654 units against nearly 11,000 units the previous year, due to a lower order book at the start of the period, while revenue was £2.38 billion compared with £3.4 billion previously.
Due to the group’s operational gearing, the 30% drop in revenue translated into a 45% drop in gross profit and a 57% drop in pre-tax profit while ROCE or return on capital employed shrank from 15.8% to 6.9%.
However, trading conditions improved towards the end of the second half which, combined with a programme of opening more sales outlets, means the firm is ‘well-placed to deliver a material increase in volume output’ this financial year, according to chief executive Jason Honeyman.
As of the end of September, Bellway had a private reservation rate of 147 homes per week against 99 at the same point a year ago, and a forward order book of 5,109 homes compared with 4,636 at the same point last year with a value of £1.43 billion against £1.23 billion.
EXPERT VIEW
‘The stars are finally aligning for the housebuilding sector’, observed AJ Bell investment director Russ Mould.
‘The new government has pro-housing policies with a promise to relax the planning system which has caused hold-ups and headaches in recent years; interest rates are coming down which makes mortgages more affordable; and property prices are strengthening. It’s no wonder that Bellway is so optimistic despite reporting a drop in profits.
‘The group is sitting on a big bank of land, ready to build more houses which should underpin future profits. It is also in a relatively strong financial state with only a small net debt position.’
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author (Ian Conway) and the editor (James Crux) own shares in AJ Bell.
