Housebuilder Bellway (BWY) trumpets its tenth consecutive year of volume growth as it unveils first half numbers, helping to drive up the share price by 2.9% to £30.88.
For the six months to 31 January, pre-tax profit increased by 8.7% to £313.9m and total revenue gained 12.4% to £1.49bn from a year earlier.
Less positively the cancellation rate was up marginally to 13% from 11% a year ago as Brexit uncertainty hits consumer sentiment and margins slipped from 22.5% to 21.5% with guidance for further pressure on profitability in the remainder of the financial year. The dividend is hiked 5% to 50.4p.
Describing the decade of unbroken growth in volumes as an achievement ‘not to be sniffed at’ AJ Bell investment director Russ Mould says: ‘The group says it currently has capacity to build 13,000 units per year (against around 10,500 in the last 12 months) and on its current trajectory there’s no reason to think over time it couldn’t catch up with industry leaders which are churning out upwards of 17,000 units per year.’
Commenting on its margin issues Mould adds: ‘At the very least Bellway’s management has been upfront about the likelihood of a narrowing of its margin performance for some time, and the combination of lower selling prices and rising construction costs is one all of its peer group has to face.
‘Its strategy to continue growing despite reduced profitability is not one which will necessarily be replicated elsewhere though, and time will tell if this is a sound approach or not.’
ANALYSTS ARE IMPRESSED
Shore Capital analyst Robin Hardy says: ‘We still like Bellway’s desire to grow and its acceptance that margins have been running at supernormal levels and are set to decline. This is not an attitude we expect to see elsewhere in the sector where the threat of lower margins is more likely to cause businesses to hold back on sales.
‘We also like that Bellway has established a partnerships division in London which should align the group with what is still a growth market and while margins may be slightly lower, there is no capital requirement, no sales risk and earnings quality is higher.’
READ MORE ON BELLWAY HERE
Liberum Capital’s Charlie Campbell says: ‘The second half has started well, suggesting risks may now be to the upside of consensus expectations for the full year.’
Canaccord Genuity Aynsley Lammin is similarly positive, saying: ‘Management is still fixed on delivering growth with the medium term outlook for volumes of c.13,000 looking good.’
