Bellway first-half housing revenue up 12% to £1.7bn

Shares of Newcastle-based house building giant Bellway rose about 3% on Tuesday after it published a strong trading update for the six months ended January 31, 2021.

“Bellway has achieved an excellent first half performance, with housing revenue rising by over 12% to around £1,715 million (2020 – £1,524.8 million), in part driven by strong growth in the number of homes sold, which rose by 6.3% to 5,656 (2020 – 5,321),” said the company.

“In addition, the group has a substantial forward order book comprising 5,889 homes (2020 – 4,598 homes), with a value of £1,625.3 million (2020 – £1,163.1 million), with this primarily expected to contribute to completions over the next 12 months.

“The robust growth in volume is a result of the exceptionally high order book and elevated construction progress at the start of the financial year, in part a consequence of the COVID-19 related completion delays in the year ended 31 July 2020.

“The very strong first half completion performance has reduced levels of work in progress and this, together with our ongoing focus on build quality, will result in a lower level of completions in the second half of the financial year.

“The average selling price rose by 5.8% to around £303,200 (2020 – £286,570), influenced by a greater proportion of private housing completions, which rose to 78% of the total (2020 – 77%).

“The group also deliberately accelerated the construction and sales completion of higher value homes in advance of the change in the Help-to-Buy price caps, which become effective from 1 April 2021.

“The increase in the average selling price is therefore a temporary change and as a result, for the full year, the average selling price is expected to be in line with the prior year (31 July 2020 – £293,054).”

The update showed record first-half volume output with the completion of 5,656 new homes — a rise of 6.3%.

Housing completions for the full year to July 31, 2021, are now expected to increase to around 9,800 homes (July 31, 2020 – 7,522).

AJ Bell Investment Director Russ Mould said: ““Higher-than-expected volumes, higher prices and higher profit margins all mean that Bellway’s trading update reads very well and the builder seems to be feeling pretty bullish, judging by the way in which is it buying new land.

“The FTSE 250 firm has snapped up 8,848 plots of land in the first six months of its latest financial year, with a contracted value of £453 million, to put it on track to easily exceed its land-bank boosting purchases of 2018 and 2019, let alone 2020.

“That suggests Bellway is shrewdly laying the foundations for the next upward leg in its growth plans, as the builder drives new housing completions toward its current maximum capacity, which is around 13,000 dwellings a year.

“Bellway completed 7,522 units in its pandemic – and lockdown-hit fiscal 2020 year but has already completed on 5,656 units in the first half of its latest year.

“Better still, buying land at the right time in the cycle – when sentiment is depressed – is a key factor in the profit margin that a house builder makes, so Bellway can be feeling pretty pleased with its latest land grab, even as the company continues to rack up costs associated with fire safety improvements at previously constructed apartment sites.

“They weighed on profit margins last year and will do so again in fiscal 2021, although on an underlying basis Bellway is now confidence that its operating return on sales will improve by two whole percentage points in 2021, to 16.5% from 14.5%.

“Bellway’s robust balance sheet gives it the chance to prepare for the future and buy land.

“It ended the first half with a £364 million net cash pile even after the resumption of dividends with a 50p-per-share payment alongside last year’s full-year results.

“Analysts expect almost a doubling of that payment to 95p in the new fiscal year and that puts Bellway on a forward dividend yield of 3%, although some of its housebuilding peers are forecast to offer higher figures than that.”

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Mark McSherry
Dalriada Media LLC sites are edited by veteran news journalist Mark McSherry, a former staff editor and reporter with Reuters, Bloomberg and major newspapers including the South China Morning Post, London's Sunday Times and The Scotsman. McSherry's journalism has also appeared in The Washington Post, The Guardian, The Independent, The New York Times, London's Evening Standard and Forbes. McSherry is also a professor of journalism and communication arts in universities and colleges in New York City. Scottish-born McSherry has an MBA from the University of Edinburgh and a Certificate in Global Affairs from New York University.