Bellway - hot to trot?

Bellway: The UK housing market has recovered well from the post banking crisis slump, helped by various Government initiatives such as ‘Help to Buy’. However, it seems that there is a two speed market with some areas of the country doing well, including London which is ‘running hot’, whereas much of the country has seen far slower price appreciation. There has to be an increasing chance that London boils over, but the timing is as tricky as ever. Overall, housebuilders have benefited from better demand, whilst planning constraints and reduced build capacity have helped maintain a natural control on the volume of houses and flats hitting the market. On the cost side, pressures are increasing with lead times on bricks, for example, stretching out. In the case of Bellway’s pre-close update, volumes were up 21.2% to 6,851 and the average selling price was £213,000, up 10.3% over 12 months. Forward sales are up 36% and the balance sheet has net cash of £5m even after a £460m land spend (up from £300m). London accounted for 18% of sales by volume and achieved prices exceeded their expectations. Bellway is well placed for current positive market conditions and the outlook comment is upbeat talking about ‘further enhancements to shareholder value’.  The company has a July year end and for next year the PE is heading towards 8X and the yield rising smartly to around 4%. However, 2015 will see the General Election and whoever wins may want to take some heat out of the housing market, whilst Mark Carney at the Bank of England and his MPC colleagues are edging nearer to the moment when interest rates start to rise, albeit gently. This will all make for a somewhat more challenging new house market and it may well be that this is about as good as it gets for the industry. So despite all the positivity around Bellway, it could pay to start cashing in some chips on a share that is up around 150% from the depressed levels of three years ago.

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about.