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Bellway expecting strong first-half figures

Bellway will announce its first-half figures on Wednesday 25 March and the market has high hopes for the homebuilder. 

A construction worker
Source: Bloomberg

Bellway is moving from strength to strength after registering a ‘record’ annual profit last year, and last month’s trading update from the homebuilder points to a continuation of the excellent performance. Full-year revenue and profits climbed 34% and 75% respectively, and the company’s total dividend was a record of 52p.

The strong property market in the UK has helped Bellway increase the number of its homes under construction, and the average selling price is on the rise too. Bellway builds the majority of its houses outside of southern England, and with house prices rising faster in the North than that of Greater London Bellway stands to benefit from this.

The Help to Buy scheme has assisted Bellway and the rest of the homebuilders, and as George Osborne did not mention it in the recent budget announcement, this suggests it will stay in place until 2020, likely providing further assistance to the company for several more years.

The ultra-low interest rates in the UK are a major contributor to the property market, and with the CPI figure dangerously close to zero, the possibility of an interest rate rise in the near term is highly unlikely. In fact, Mark Carney has warned that the UK could encounter deflation in the short term, and he would consider cutting interest rates from their record-low if necessary. If this occurred it would boost Bellway’s profit-making ability.

The homebuilder will reveal its first-half numbers on Wednesday 25 March and the consensus is for revenue of £847 million and adjusted net income of £120 million. The second-half figures from last year were well received by traders, with revenue coming in at £785 million and adjusted net income at £110 million against market expectations of £747 million and £104 million respectively. The firm will announce its full-year numbers in October, and dealers are expecting revenue of £1.71 billion and adjusted net income of £257 million. The estimates represent a 15% increase in revenue and a 35% jump in adjusted net income.

Equity analysts are bullish on Bellway and out of the 19 ratings, ten are buys and nine are holds. The average target price is £21.05, which is 9.1% above the current price. Investment banks are even more bullish on its competitor Taylor Wimpey. From its 19 recommendations, 14 are buys and five are holds. The average target price is 160p, which is 5.2% above the current price.

The stock has been rising steadily since emerging from the credit crisis and the £19 level is acting as support. If that level is held the resistance at £20 will be the first target, and then traders will look to the record high of £20.50. Any moves lower will provide opportunities to buy the dip, and a breach of the £19 level will put the next support at £18, followed by major assistance from the 200-day moving average at £17.

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