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Bellway delivers strong results: But is Q2 the last hurrah for UK house builder shares?

09:43, 10 August 2022

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Bellway housing project in Wales. Photo:Shutterstock
Bellway points to strong order book and balance sheet. Photo: Shutterstock

Bellway (BWY) is the latest housebuilder to post upbeat figures- following Taylor Wimpey (TW) last week.

In its latest trading update yesterday, Bellway revealed a record housing revenue, which rose by 13% to over £3.5bn (2021 – £3.17bn, 2020 – £2.2bn).

A strong forward sales position, with an order book comprising 7,223 homes (2021 – 7,082 homes, 2020 – 6,588 homes) at a value of £2,114.3 million.

Like Taylor Wimpey, Bellway highlighted its strong balance sheet with year-end net cash of £245m and also disciplined land investment to support growth plans.

Bellway’s share price rose following the update and has risen slightly again today – hitting 2,321p in mid-morning trading.

Bellway share price chart

Jason Honeyman, Chief Executive of Bellway insisted that the environment for house builders was a healthy one.

“The UK housing market remains robust, underpinned by good mortgage availability and low levels of unemployment across the country.”

Honeyman’s positive assessment is not one that is universally shared though.

There are real concerns that for house builders, the bad news is just around the corner and this is the calm before the storm.

As Danni Hewson, financial analyst at AJ Bell explains: “Broadly speaking the house builder has muscled through cost issues and has a ‘sizeable’ forward order book, but signs are the market is already starting to cool.”

She adds: “Interest rates are rising, people’s ability to save up deposit cash is being sorely tested and some people will delay moving until they feel their finances are on more stable ground.”

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Pressures on house builders

Honeyman may be right that there is good mortgage availability and low levels of unemployment – but for how long?

And yes, there is a government pledge to build 300,000 houses a year to try and satisfy a huge demand for new homes but ‘government pledges’ are arguably not seen as strong currency right now.

Add to this ongoing supply chain issues and surging raw material costs and the backdrop for UK housebuilders looks stormy. Rising material costs might be covered at the moment by robust new house pricing levels but there are certainly no guarantees of this continuing. Recession (and the talk is increasingly of ‘when’ not ‘if’) and home buying are not good bed fellows.  

The supply equation is not going to change any time soon but that doesn’t preclude a major stalling in house buyer interest - even if it is temporary.

Investor options

For investors there is the option to buy at historically low prices – shares in Bellway, Taylor Wimpey (TW.), Persimmon (PSN.L), Barratt (BDEV) and Crest Nicholson (CRST) are all significantly down on where they were 12 months ago.

If the fundamentals of the sector (i.e supply/demand) are not changing then there is an argument for buying and holding.

Marketbeat tends to support this view – with a consensus rating for Bellway of ‘moderate buy’ the same rating applies to Crest Nicholson and Barratt; while Taylor Wimpey is a ‘buy’ and Persimmon a ‘hold’.  

Taking a longer-term view might involve taking some short-term pain but taking the view that house builders have already sourced good land investment for development, and this will still be needed when the storm clouds lift.

Pinpointing the peaks and troughs may not be easy but there is always the hedge option to short the sector when the market hits trouble.  

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