- Third-quarter update shows higher-than-expected completions and prices
- Increase in forward order book provides more visibility for the next financial year
- Enhanced land buying suggests management feels more confident in the outlook
“Bellway’s shares are broadly unchanged over the past one and five years, but an encouraging third-quarter trading update gives patient shareholders grounds for optimism,” says AJ Bell investment director Russ Mould.
“Completions and average selling prices for the year to June both look set to slightly exceed expectations, while an increase in reservation rates and the forward order book provides management with greater visibility for the next financial year, to June 2026.
“Covid, higher interest rates, rising input costs, the end of Help-to-Buy in 2023 and regulatory levies have all weighed on Bellway and the housebuilders more generally, with the result that the stocks have derated. Whereas multiples of toward two times historic net asset, or book, value prevailed, the sector now trades on barely one times.
“Investors who feel that an upturn in demand is coming, and that planning deregulation will ease cost burdens, may feel that this represents an opportunity. Those who fret about affordability, weak consumer confidence and how sticky inflation may crimp the rate at which interest rates, and thus mortgage rates, can come down may worry that one times book value may not be a valuation floor but a ceiling for the sector.
Source: Company accounts, Marketscreener, consensus analysts’ forecasts and LSEG Refinitiv data
“MJ Gleeson’s woes, and share price collapse, last week, will have done nothing to assuage the bears’ fears, but Bellway has done its best to support the bull case.
“Chief executive Jason Honeyman now expects the builder to complete between 8,600 and 8,700 dwellings in the financial year to June, ahead of prior guidance of at least 8,500 homes. Average selling prices are also set to come in a touch higher than previously expected, at £315,000 compared to initial expectations of £310,000.
Source: Company accounts. *Management guidance for 2025E and 2026E. Financial year to June.
“Whether this is good news for would-be buyers is more debatable, but it does suggest that demand remains relatively well underpinned, even if it remains to be seen whether March’s expiry of the stamp duty land tax reliefs introduced in 2022 starts to weigh. Mortgage approvals by the major lenders have sagged a touch in the past couple of months, according to data from the Bank of England.
Source: Bank of England, LSEG Refinitiv data
“The reservation rate has improved to 0.61 per outlet per week, from 0.51, since the interim results and the forward order book has risen to 5,759 homes from 5,572 at the mid-point of the financial year to June.
“This gives enough visibility for Mr Honeyman and his team to expect a cumulative 20% increase in completions across the 2025 and 2026, although even this advance still leaves the forecast total for next year below the equivalent figure for the twelve months to June 2017. Higher house prices have therefore done much of the heavy lifting so far as sales and profits are concerned, although analysts still believe that profits and margins will be way below the go-go times of the late 2010s, when the Bank of England base rate was almost zero and Help-to-Buy was in full swing.
Source: Company accounts, Marketscreener, analysts' consensus forecasts. Financial year to June.
“That may explain why share prices and valuations remain much lower than prior peaks, at Bellway and across the housebuilding sector more widely. Balance sheets remain strong, however, with net cash piles the norm, although land buying and dividends have whittled away Bellway’s hoard and left it with £73 million in net debt.
Source: Company accounts, management guidance for 2025E. Financial year to June.
“Even that is a very modest figure, however, and it leaves the company with plenty of room for land acquisition and also cash returns to shareholders. The third-quarter update hints at a more comprehensive statement on Bellway’s capital allocation plans later in the year, presumably alongside the full-year results in October, and it may be that the FTSE 250 index member is reviewing both its policy on dividend cover and share buybacks.
“A buyback could make sense in this instance, providing Bellway invests sufficiently to maintain its competitive position first, given that the shares trade at a discount to book value.”
Source: Company accounts, Marketscreener, analysts' consensus forecasts. Financial year to June.
