Bellway still in demand

The residential property developer will announce its fourth-quarter revenue results on 7 August, and the share price is beginning to plateau.

Home builders at work
Source: Bloomberg

Bellway’s shares have experienced tremendous growth since the financial crisis, and the company continues to reveal encouraging results. Bellway, like its peers, is taking full advantage of the low interest rate environment and the strong demand for houses by the British public by increasing its land bank, and by gaining access to a larger lending facility. As house prices in the UK are beginning to cool, and the BoE may increase interest rates this year, the next few months could lead to cautious activity by Bellway’s management.

In the first six months of the year, Bellway announced a 53% jump in profits, as house completion and the average asking price increased by 16% and 3.3% respectively. In the March update, the firm revealed that the order book stood at a ‘record’ £1.12 billion, and that was a 35% jump in comparison with last year’s number. As I previously stated, Bellway derives the majority of its earnings from outside of London, but in the first-half of the year the London area witnessed a 16% rise in revenue.

The UK property market is no longer growing at the rate it once was, but the ‘Help to Buy Scheme’ will keep assisting first-time buyers. While interest rates could be moving away from all-time lows before the year is out, we might a see a rush at mortgage lenders. Mark Carney has dropped hints that he will increase interest rates in 2015, but in July all nine members of the BoE voted to keep rates on hold.

Bellway will reveal its full-year results on 13 October, and the market is expecting revenue of £1.72 billion, and adjusted net income of £265 million. These forecasts represent a 16% jump in revenue and a 38% jump in profits. The homebuilder will announce its second-half results on the same date, and traders are anticipating revenue of £925 million, which compares with the first-half revenue of £831 million.

Equity analysts are bullish on Bellway, and out of the 17 ratings, ten are buys, and seven are holds. The average target price is £25.18, which is 5.5% above the current price. Investment banks are less bullish on Persimmon – out of the 17 recommendations, three are buys, 12 are holds, and two are sells. The average target price is £19.52, which is 3.4% below the current price.

The share price is in an upward trend, and the all-time high of £24.61 is the target. If that mark is cleared then £25 will be in sight. The share price is receiving support at £23, and if that level is punctured the next level of support will be £22.20. 

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