Bellway raises guidance for completions and margins

Bellway (BWY) has increased completions’ guidance for 2021 after the frenzy to take advantage of stamp duty savings and pent-up demand boosted the order book during the first half. The housebuilder expects completions to come in at 10,000, which would be almost a third higher than last year but 8 per cent behind 2019 levels. 

Management expects the recovery in sales volumes to boost the adjusted operating margin - excluding fire safety expenses - to 17 per cent this year, up from 14.5 per cent. Like peers, the housebuilder set aside cash, totalling £20.3m, to help owners of legacy apartments undertake fire safety improvements.  

After a slowing in the reservation rate as more widespread lockdown measures were imposed in November, demand returned to a more normalised level at the start of 2021 thanks to a smooth transition to the new Help to Buy scheme, the group said. 

The order book stood 8 per cent higher than July 2020 at £1.6bn, which has given management the confidence to guide towards an average selling price of £295,000 over 2021, marginally higher than the prior year.

Consensus analyst forecasts for earnings per share were increased by 2 per cent to 308p this year, rising to 342.7p for the year to June 2022. 

Sales volumes were at a record high for a six month period, up 6 per cent on the same time in 2020. Demand was strongest where houses were more affordable, chief executive Jason Honeyman said, which has led to house price inflation, particularly in the north west of England and midlands. Conversely, London developments have focused on the outskirts of the city, where buyers can find better value. 

Reduced competition in the land buying market also meant the group took advantage of more attractive margins, purchasing a record number of plots at almost 8,850. A bolstered net cash position meant the group was also able to reinstate the interim dividend, although this year’s payment should be weighted towards the second-half, management said. The consensus analyst forecast for this year’s dividend is 107.2p.  

The shares have risen since the government unveiled its roadmap for exiting lockdown and trade at a 28 per cent premium to forecast NAV at the end of July, but an undemanding 11 times forward earnings. Buy.

Last IC view: Buy, 2,823p, 3 Dec 2020