- Housebuilder’s first-half profits undershoot analysts’ expectations
- Management nudges forecasts for completions higher but trims margin guidance
- Knock-on effects from oil and gas prices in bond and mortgage markets remain a risk
- Shares still trade below net asset value and balance sheet is strong
“Bellway’s shares are tumbling after a mixed set of first-half results and a cautious outlook on profit margins for its financial year to July that will prompt analysts to cut earnings forecasts for the housebuilder,” says AJ Bell investment director Russ Mould.
“The downgrades come even before any impact from higher bond and mortgage rates that may follow if oil and gas prices stay higher for longer than hoped and leave the shares no higher than ten years ago, although at least that means the stock does not look particularly expensive relative to the valuation of the assets on the FTSE 250 firm’s balance sheet.
Source: LSEG Refinitiv data
“Yields have shot higher across the full-range of maturities in the UK Gilt, or Government bond, market since America and Israel first struck against Iran at the end of February, thanks to worries about what sustained oil and gas price increases could do to inflation, growth and the nation’s already brittle finances.
“If hydrocarbon prices, and thus Gilt yields, stay higher for longer than hoped that could start to affect consumer confidence and their ability and willingness to spend, especially on the biggest-ticket item of all, a house.
“The UK five-year Gilt yield, a proxy for potential mortgage rates on many UK fixed-rate property loans, is hovering at around 4.5% compared to 3.7% when the war in the Middle East began.
“That has taken a heavy toll on Bellway’s shares and the mixed set of interim results and disappointing profit margin guidance for the financial year to July 2026 as a whole have not helped sentiment either.
“The good news is that Bellway has increased its forecast for housing completions for the year to July 2026 to between 9,300 and 9,500, compared to management’s prior steer of 9,200. Pricing is also proving to be better than hoped and Bellway now expects an increase of 3% in average selling prices for the year to around £325,000, up from the prior expectation of £320,000.
Source: Company accounts. *2026E based upon management guidance, with mid-point used for completions. Financial year to July.
“However, the first-half’s profits undershot analysts’ estimates by almost 10% and management’s steer toward full-year operating profit of around £320 million is below the prevailing consensus and implies a reduction in profit margin forecasts.
“The new forecasts imply that Bellway will generate one-third more in sales than it did ten years ago but produce one-third less operating profit in the process, to perhaps give a feel for the degree of input cost inflation faced by the business.
Source: Company accounts, Marketscreener, consensus analysts' forecasts, management guidance for 2026E. Financial year to July.
“Bellway cites input cost inflation and also incentives to shift bulk deals so the company can reduce inventory and release cash as reasons for the margin disappointment. The company had built inventory, either because demand had not met expectations or because management had taken the view that it wanted to be ready for any upturn.
Source: Company accounts. Financial year to July.
“The inventory build soaked up cash, while buybacks and dividends have also left Bellway with a modest net debt position. Perhaps management is taking a more defensive stance and rebuilding liquidity just in case the Middle Eastern war does have a negative impact closer to home.
Source: Company accounts. Financial year to July.
“The net position of £72 million is still very modest, however, a spring selling season should bring in more cash for good measure, so there is no great need to worry on that count.
“Shareholders may also seek solace from how the shares continue to trade below one times tangible net asset value, or book, value per share, and this may also provide some degree of downside protection for investors wishing to tough out the current difficult market, in the view that housebuilders’ shares can trade a lot closer to two times book value when the good times roll.”
