Bellway: Analysts cautious on outlook despite improving market for homebuilders
Shares in Bellway dipped on Monday after analysts slapped the stock with a ‘hold’ rating despite the company’s recent positive trading update.
Analysts at Liberium said they wanted to see a more sustainable recovery from the FTSE 250 company before they could change their views on the business.
“We are encouraged by the improving trading conditions, which we believe will support Bellway’s volume growth,” they said.
“Improving volumes along with stabilising build cost inflation should enable it to recover margin.”
“We note, however, that volumes are expected to remain low compared to Bellway’s own recent history.”
Last week, the developer said it was continuing to trade in line with expectations, with plans to build 7,500 homes this year.
The builder also updated the market on current trading. It noted the spring selling season has been “robust”.
Jason Honeyman, group chief executive at Bellway said at the time the firm had delivered a solid trading performance “supported by improved affordability and a seasonal uplift through the spring, and we remain on track to deliver full year volume output of around 7,500 homes”.
“We have been encouraged by ongoing healthy levels of customer interest and combined with the strength of our outlet opening programme, we continue to expect a year-on-year increase in the forward order book at 31 July 2024.
“As a result, Bellway remains in a strong position to return to growth in the financial year 2025.”
Shares in the firm have risen over 22 per cent in the last year, and its market cap is just over £3bn.
Trading picks up for home builders
It comes as UK housebuilders are still picking up the pieces from the fallout from high inflation and interest rates, which decimated confidence in the market.
Russ Mould, investment director at AJ Bell, said: “Those investors with long memories with remember how house building stocks took off like a rocket in late 1992 and throughout 1993, once the pound had been kicked out of the Exchange Rate Mechanism and the then Chancellor of the Exchequer, Norman Lamont, felt able to cut interest rates, and the UK emerged from a recession.
“The builders’ also responded favourably to the Bank of England’s rate cuts in 2001-03 and again in 2004-06 when rates peaked.”
He added: “They may well be just as sensitive to headline borrowing costs this time around, although Bellway, like most of its rivals, now has a net cash balance sheet, so there is less financial gearing into any recovery this time, even if there will be plenty of operational gearing, if pricing and volumes start to pick up strongly once more.”
House builders will remain in focus this week as peer Crest Nicholson is also set to update markets on how it fared in the first half of the year.
Shares in the firm have risen by just four per cent in the last year as the company was forced to warn on its profit amid a national cash crunch.
Back in March, Crest said it is likely to build 11 per cent fewer homes in the financial year 2024.
Danni Hewson, AJ Bell head of financial analysis, said: “Crest Nicholson will only have reinforced some investors’ view that it is accident-prone with a disappointing trading update back in March.
“The Surrey-headquartered company revealed it had been made aware of building defects across four sites that were completed before 2019 and therefore before Mr Truscott’s plan to close its Regeneration and London divisions was implemented.”
“The net result is estimated costs of around £15 million over the next three years, but the move to call in a consultant to check that provision is adequate suggests more may yet be needed.”
He added: “That provision will be the first number to which analysts turn when they assess the interim results.”