ii view: Bellway backs self-help to navigate tough market

Third-quarter trading update to 29 May

• Reservation rates down 6.2%
• Forward order book of £1.57 billion, down from £1.65 billion at year ago
• Net debt of £236 million, up from a £72 million in late January

Guidance:

• Continues to expect profit of between £320 million and £330 million in 2026 versus £303.5 million last year

Chief executive Jason Honeyman said:

"Bellway continues to perform robustly in an increasingly challenging market, with customer demand having moderated in recent weeks, after a positive start to the spring selling season. 

“The outlook beyond the current financial year remains uncertain, reflecting ongoing geopolitical tensions in the Middle East and a less predictable domestic political environment. Against this backdrop our clear focus on self-help and drive for capital efficiency provides resilience while supporting our strategy to increase cash generation and shareholder returns."

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ii round-up:

Headquartered in Newcastle, housebuilder Bellway (LSE:BWY) operates via regional offices across the UK.

Group brands are Bellway, Bellway London and Ashberry.

Employing around 2,700 people, Bellway builds traditional family houses outside of London and apartments within London.

For a round-up of this latest trading update announced on 9 June, please click here.

ii view:

Founded in 1946, Bellway is today a constituent of the FTSE 250 index. The Ashberry brand is used on just over a tenth of active outlets, and typically on larger sites alongside the core Bellway brand, offering a choice of layouts and elevational treatments from the standard house type. Rivals include Persimmon (LSE:PSN), Taylor Wimpey (LSE:TW.) and Barratt Redrow (LSE:BTRW).

For investors, factors putting upward pressure on interest rates now include elevated energy prices following the Iran conflict and even concerns about UK government debt levels given a potential government leadership battle. High energy prices are already affecting build costs such as the firing of bricks. Stretched UK government finances now offer little room for sector assistance, as seen in the past, while the impact of AI on younger worker employment prospects and their potential to buy homes is tough to predict.  

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On the upside, management self-help measures to focus on cash generation via incentives and increased bulk sales are not to be overlooked. The previous acquisition of Redrow by Barratt Developments could yet see further sector consolidation occurring at some point. Group net debt of £236 million compared to a stock market value of £2 billion points to a robust balance sheet, while a Middle East peace deal could see elevated inflation fall away relatively quickly.  

On balance, and while risks remain, a consensus analyst fair value estimate around £23.50, lower likelihood of interest rate hikes and forecast dividend yield of 4% offer reasons for investors to watch closely.

Positives:

• Attractive dividend yield (not guaranteed)
• Government push to ease planning regulations

Negatives

• Highly uncertain inflation and interest rate outlook
• Elevated government taxes

The average rating of stock market analysts:

Buy