Bellway Rises Following FY Statement, Warning Of Further Volume And Margin Drops

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Shares in homebuilder Bellway edged higher on Tuesday despite warnings that volumes and margins will continue to slide this year.

At £21.80 per share, Bellway’s share price was 0.9% higher on the day.

Bellway — which is one of the UK’s top five housebuilders – saw revenues drop 3.7% in the 12 months to July, to £3.4 billion. Completions fell to 10,945 homes from 11,198 a year earlier, while average selling prices dipped to £310,306 from £314,399 previously.

The company’s underlying operating margin fell by 2.5% over the year to 16% due to higher build costs, extended site durations caused by slower reservation rates, and the increased use of selling incentives.

These factors meant that underlying operating profit slipped 16.7% to £543.9 million. Underlying pre-tax profit dropped 18.1% year on year to £532.6 million.

Sales across the housebuilding sector have slumped as the Bank of England has steadily raised interest rates to tame inflation. Property listings company Rightmove announced this week that home sales in the UK have dropped 17% over the past year.

Bellway finished the financial year with net cash of £232 million, down from £245.3 million. It kept the full-year dividend frozen at 140p per share.

Volumes, Margins Tipped To Decline

For the current financial year, the FTSE 250 builder said that continued tough conditions would result in “[a] material reduction in volume output.” It noted that “customer demand continues to be affected by mortgage affordability constraints, with reservations below the comparative rates in the prior year.”

Overall weekly reservations at Bellway have dropped to 133 during the nine weeks from August 1 from 191 in the same 2022 period. Meanwhile, the private reservation rate has slipped to 99 per week from 136 previously.

Forward sales as of 1 October dropped by £860.5 million year-on-year, to £1.2 billion, and the firm’s order book plummeted to 4,636 homes from 7,257 homes over the period.

Based on the average private reservation rate per site per week of 0.46 recorded last year, Bellway said it expects to deliver 7,500 homes in financial 2024. However, it also predicted it would “end the year with a higher order book… to serve as a platform for a return to growth beyond the current financial year.”

The company predicted that its underlying operating margin would fall by a further 600 basis points this year. This reflected expectations that “headwinds from lower volume output, ongoing pressures of cost inflation and the use of sales incentives” would endure.

Upbeat Assessment

Chief executive Jason Honeyman commented that “Bellway has delivered a resilient performance against a backdrop of rising mortgage interest rates and challenging market conditions. Looking ahead, our operational strength and experienced teams will enable the Group to successfully navigate a changing market.”

He added that “the depth of our land bank and robust balance sheet provide ongoing strategic flexibility and scope for outlet growth in the year ahead. Notwithstanding the near-term market challenges, Bellway remains very well-placed to capitalise on future growth opportunities.”

“Resilient Performance”

Analyst Andy Murphy of Edison Group said that “against a formidable market backdrop, this is a resilient performance for the five-star housebuilder, showing a good positioning for a prompt return to sustainable growth as the wider economy recovers and clarity emerges over future housing policy.”

He added that “over the long term, Bellway’s divisional structure bodes well for the ability of local management teams to respond to specific demands in their geographical areas and contribute to the creation of strong, local communities. The Group’s deep land bank also provides ongoing strategic flexibility and scope for outlet growth in the year ahead.”

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