A strong set of first half results from house-builder Bellway (BWY) only underlines the ongoing supply-side shortfalls which are currently driving an unsustainable effervescence in the UK's housing market. Whether this incipient crisis can be put on the long finger for another few quarters or not remains to be seen but in the meantime, investors seem happy enough to fill their boots and shares in the £3.1 billion cap are up 3% at £25.48.

Across the metrics that matter, Bellway has posted a robustly healthy set of interims with highlights including a 42.6% hike in profit before tax; a 30.5% jump in revenue and a 480 basis points leap in return on capital employed.

Operating margin in the six months to the end of January was another highpoint, advancing by 150 basis points to 21.4% with the group predicting this metric would print at 22% for the full year.


But aside from prudent cost management and rising selling prices, Bellway has made more effort than many of peers to actually address demand rather than just driving margins. Bellway notes that 'the industry is still facing a shortage of skilled labour, most notably around London, with this an ongoing constraint with regards to the sector's ability to further increase housing output. Notwithstanding this limitation, the group has invested heavily in work in progress in order to deliver further growth, resulting in the number of homes in production increasing by almost 14% to 9,013 plots (31 July 2015 - 7,923 plots), albeit a number of these are still in the early stages of the construction process.'

Chris Millington at Numis rates Bellway as 'Add' and notes that 'this is another strong update from Bellway and earnings momentum continues (we have now upgraded 2016 estimates by 38% since we first published forecasts in June 2014).'

Gavin Jago at Peel Hunt observes that Bellway shares have been amongst the worst performers year-to-date, partly on worries about London. 'These results should dispel a lot of those concerns and the valuation discount that the group is trading on should narrow,' the analyst says.

Issue Date: 22 Mar 2016