UK housebuilders are in a sweet spot right now. Massive write downs on their land banks are history and all the major builders have cut their debt significantly. Building plots are cheap to buy, and recent efforts by the government may even see the planning process speeded up. Meanwhile, demand and house prices remain remarkably resilient despite the scarcity of affordable mortgages. But let's not forget that output remains on 'tick over' compared with the heady days before the financial crash.
- Solid sales growth
- Using land acquired at cheap prices
- Average selling price up
- Minimal debt
- Mortgage market still difficult
- Shares offer little income
So housebuilders have been delivering some impressive performances this year and just one, Newcastle-based Bellway, has yet to report full-year figures. These are due on 16 October, and we reckon there is some mileage left in its the share price between now and then. True, the share price has just hit its 12-month high, but it's still barely more than published book value and still below the 986p net asset value (NAV) forecast by broker Investec Securities for the end of 2012-13.
Trading for the year just ended has delivered decent growth, with completions up by 6.2 per cent to 5,226. What’s more, most of the increase came from building private homes, where selling prices are higher and profit margins fatter. This helped push Bellway's average selling prices up by over 6 per cent to around £187,000, and the company's bosses reckon that operating margins are likely to shoot ahead from 8.5 per cent last year to at least 11 per cent. Progress has been helped by greater use of recently acquired - and therefore cheap - land. Bellway increased its spending on land from £250m to £305m, most of which was acquired in the more prosperous south-east. However, its debt is minimal and it has a £300m facility in place to pursue further land purchases.
| BELLWAY (BWY) | ||||
|---|---|---|---|---|
| ORD PRICE: | 941p | MARKET VALUE: | £1.14bn | |
| TOUCH: | 938-941p | 12-MONTH HIGH: | 941p | LOW: 550p |
| DIVIDEND YIELD: | 2.4% | PE RATIO: | 13 | |
| NET ASSET VALUE: | 903p | NET DEBT: | 3% | |
| Year to 31 July | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2009 | 0.68 | -36.6 | -23.9 | 9.0 |
| 2010 | 0.77 | 44.4 | 29.7 | 9.3 |
| 2011 | 0.89 | 67.2 | 41.5 | 10.4 |
| 2012* | 0.99 | 99.4 | 60.7 | 16.5 |
| 2013* | 1.07 | 118.9 | 73.6 | 22.5 |
| % change | +8 | +20 | +21 | +36 |
Normal market size: 2,000 Matched bargain trading Beta: 1.0 *Investec Securities estimates (dividends not comparable with historic figures) | ||||
Bellway has also been busy opening new sites. This has helped to grow average weekly reservations from 93 to 101, which has been achieved without resorting to extra sales incentives, while less profitable equity-sharing deals have been restricted to less than 7 per cent of total reservations. However, a scarcity of affordable mortgages remains a drag on sales, which are still well short of the 7,638 made in 2007. The government’s NewBuy scheme has contributed just 133 reservations since it was launched in March - that's less than seven a week - and it remains unclear whether this will develop sufficiently to be able to kick-start the mortgage market, especially as banks are charging much higher interest rates on NewBuy mortgages.
Trading since the financial year end has slowed a little, as it always does at this time of year, but Bellway's order book is up from 2,497 homes a year earlier to 2,533, worth some £441m.
