How will Bellway shares react to the UK’s robust new-build market?

UK housebuilder Bellway published its latest trading update on 15 June, confirming that demand for new builds will remain strong for the remainder of the fiscal year. Considering this, why are Bellway shares remaining static?

  • 239 average new build reservations per week
  • Record levels of investment in new plots
  • £408m net cash on the balance sheet
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What are the headline figures from the latest Bellway trading update?

Bellway, a specialist in new build developments spanning one-bedroom apartments to six-bedroom family properties, anticipates completing more than 10,000 new home sales before the end of its fiscal year ending 31 July 2021.

During the last trading period of 1 February to 6 June 2021, Bellway’s average weekly reservations for new-build properties were up 51.3% year-on-year from 158 to 239. However, this is still fractionally down on pre-pandemic levels of 244 weekly reservations during the same period in 2019.

Within its trading update, Bellway CEO Jason Honeyman describes its latest figures as evidence that ‘customer confidence throughout the wider housing market is resilient’.

Had investors in Bellway shares already priced in a bullish order book?

Bellway, which is one of the mid-cap firms in the FTSE 100, also confirmed its forward order book had increased by 20.5% to a value of £1.89bn from £1.57bn in 2020. The 2021 order book is also up on the £1.64bn recorded in 2019 before the onset of the Covid-19 outbreak.

The company added that its strong order book had been ‘supported by the extended stamp duty land tax holiday and, more broadly, ongoing customer aspirations for more home-working space’. This is due to the shifting work-life balance for many professionals, with a new hybrid way of working almost certain for the foreseeable future.

Despite the encouraging order book for the medium term, the Bellway share price has fallen over 1.26% in the last five days between 10-16 June. It suggests that investors had already priced in strong trading figures in recent weeks, given that Bellway shares are up over 19% in the last six months.

According to Canadian investment bank Canaccord Genuity, the Bellway share price has one of the lowest price-to-book multiples in the housebuilding sector, which underpins its bullish target price of £40.60 per share.

What is the balance sheet picture for Bellway?

Bellway reported record levels of investment in land, with 15,982 new plots contracted to the firm since August 2020, up from 10,079 plots in 2020, and 10,620 in 2019.

Its trading update confirms a ‘strong balance sheet’, containing net cash of £408m and net debt of £157m, compared with net debt of £261m in the previous year. Bellway states this ‘provides resilience and flexibility’, restoring confidence among Bellway shareholders.

The average selling price is also up year-on-year from 293,054 in 2020. It is forecast to be in excess of £300,000 for this fiscal year.

However, the firm notes ‘growing demand for both skilled labour and material resources’, which have resulted in ‘upward pressure on costs throughout the wider industry and for Bellway’.

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