Bellway share price: what to expect from first-half results

After a tough 2018, Bellway shares seem to provide an opportunity for those expecting more growth from UK housebuilders.

Bellway construction house Source: Bloomberg

When is Bellway’s earnings date?

Bellway publishes earnings on 27 March, covering the first six months of its financial year.

Bellway’s results preview: what does the City expect?

Bellway is expected to report earnings of 434p per share, up 3% over the year, while revenue is expected to be £3.1 billion, up 4.8% from a year earlier. Its earnings growth is expected to be weaker than its peers, but revenue growth is forecast to be in line with the sector. Bellway has beaten earnings expectations in six of the last seven earnings reports, and in seven of the last seven reports for earnings.

Once inflation is taken into account, the UK housing market has entered a new phase, one where house prices are declining. In nominal terms, growth continues, but inflation is rising faster, and thus real prices are falling. Brexit and slowing growth are two key concerns, of course, but fundamentally the housing market is finally seeing a change after years of impressive price growth.

Housebuilder shares now look cheap on valuation metrics. Bellway trades at 6.9 times forward earnings, below the five-year average of 8.9, a picture that is reflected across the sector. The question for investors is whether these low valuations are a bargain, or an indication of worse to come in terms of business performance.

Revenues and earnings have both risen steadily over the past five years, while dividends are up almost five times. However, more buyers are cancelling purchases, as uncertainty increases, and this is a metric that investors should keep an eye on in case it worsens. However, growth in the range of 3-5% is still expected in coming years – average selling numbers and completions continue to rise, providing a solid foundation for growth.

Help to Buy, the government’s plan to boost home ownership, has proved a boon for the sector, which has seen profits rise impressively over the past five years. The firms have used this period of bumper growth to revamp their balance sheets, and now sit on healthy cash positions as opposed to the debt-laden firms of the pre-crisis period. Accounting practices mean that their land banks are valued at the price the land was bought for, instead of its worth now. As a result, the overall picture for homebuilders is even better than that seen in annual results.

There are other clouds on the horizon, including the possibility of higher interest rates, and a rise in inflation that will hurt margins. But housebuilders such as Bellway do look to be well-positioned for the future, and well-prepared for any downturn.
Of the 17 broker ratings on Bellway, 13 are buys and four are holds, with no sell recommendations. The current overall target price for Bellway’s shares is £34.87, around a 14% premium to the current share price.

How to trade Bellway’s first-half results

The average move on results day for Bellway has been 3.87%, according to Bloomberg. Volatility in the share price has been declining steadily since December, when the 14-day average true range hitting 108p, or 4% of the share price as of 12 December. At present the average true range (ATR) is 62, just 2%, indicating that the shares have become much less volatile over the past three months.

Bellway share price: technical analysis

From the end of 2010, Bellway shares began a steady rally. This had a severe shock in the first half of 2016, when the shares lost 43% of their value, but a surge from July 2016 saw the shares gain 135% trough-to-peak.

Following this, a 12-month pullback cost the shares 32% of their value. While they have rebounded, the current uptrend is still only in its early stages.

It is positive to see the shares breaking higher from trendline resistance. The shares broke through £30.00 in late February, breaching the downtrend line from the December peak. The price then retested the trendline from above, finding support around £29.80. Crucially, they have also created a new higher high at £31.00, pushing through the zone of resistance that held from September 2018 into January 2019.

Rising trendline support from the December lows comes into play around £30.00, while further gains would target the June high at £33.20 over the longer term.

Bellway shares bolstered by good fundamentals

As a strong performer over the past decade, Bellway has delivered the goods for investors. The question now is whether there is more growth to come. House prices are due a period of weakness, but if a no deal Brexit is avoided this may be temporary. Demand continues to outstrip supply, suggesting that a bigger price crash is not around the corner.

On both a valuation and a technical basis, Bellway would seem to offer up an interesting opportunity. Much of the bad news might now be in the price, due to the low valuation, making it easier to beat expectations. Meanwhile, the 2018-2019 share price slump may have run its course, with recent price action providing a bullish dimension.


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