Bellway PLC

Bellway PLC (LON: BWY) is a FTSE-250 listed residential property developer. It is engaged in housebuilding and caters the population across England, Scotland, and Wales regions. The Company sell their homes through two main brands, namely Bellway and Ashberry. It offers a wide range of residential properties from one-bedroom apartments to six-bedroom family homes and caters to social housing as well. It has been in the home building business for the past 70 years and, presently, it operates through 22 divisions with a workforce of around 3,000 people.

Upcoming Events

• On 1 July 2021, BWY has scheduled its interim dividend payment of 35 pence per share.
• On 10 August 2021, Bellway is due for its next trading update.

Growth Prospects

• Favourable Market Dynamics: The demand for affordable new homes is encouraged by the availability of the 'Help to Buy' scheme. The interest rates remained low, which aided affordability, and the temporary stamp duty holiday continued to provide valuable support to the whole housing market. Bellway has accelerated investment in new sites and sales outlets to meet the strong ongoing demand, which shall provide a strong platform margin recovery and growth in future years.
• Reinstated Dividend: The Group has reinstated its dividend policy with an interim dividend per share of 35 pence in H1 FY21. It expects a full-year dividend cover of 3 times its earnings. However, most of its earnings are reinvested, considering the continuing growth potential.
• Sound Business Model: Bellway PLC has sustained its status of five-star homebuilder for the fifth consecutive year. During H1 FY21, it contracted 8,848 plots with a value of £452.8 million at attractive margins, which makes them well positioned for future growth. Being the 4th largest homebuilder in the UK, the Group actively seeking to collaborate with brownfield and greenfield sites owners, focusing on superior quality homes and creating flourishing communities. BWY's order book is substantial and has a higher number of already achieved completions.
• Solid Balance Sheet: Lower leverage provides resilience, strength, and flexibility to the business. Bellway has the operational and financial strength to support the expansion of the divisional network for additional growth and delivering long-term returns to shareholders.

Risk Assessment

Emerging Risks: The uncertainties around the Covid-19 pandemic continued to have inevitable delays in the planning process. Moreover, the inflationary market conditions can dampen investors and consumers’ sentiments in the short-term. Also, the interruption in construction activity can hamper the expected house completions.

Principal Risks: There are various strategic, operational, compliance and financial uncertainties attached to the Company’s business model, such as inability to acquire lands at appropriate margins, delay in the planning process, pricing pressure with competition, health and safety hazards in the construction process, macroeconomic factors pertinent to mortgage availability, price inflation, government housing policy, and interest rates. 

Now we will analyse some key fundamental and shareholders statistics of Bellway PLC.

Trading Update (in respect of the period from 1 February to 6 June 2021, as on 15 June 2021)

• Bellway experienced an average of 239 reservations per week in the above-mentioned period, reflecting an increase of 51.3% in comparison with the equivalent period in the prior year.
• The Group also registered a record investment in land as it has contracted 15,982 plots since 1 August 2020 at attractive rates of return. It underpins a strong platform for future growth.
• BWY also reaffirmed its strong balance sheet with et cash of £408 million, providing resilience and flexibility.
• The order book also remained robust to £1,889 million, comprising 6,763 homes (31 May 2020: £1,568 million, comprising 6,038 homes).

Financial Highlights (for the half-year ended 31 January 2021, as on 24 March 2021)

 (Source: Company Presentation)

• The Board expected the completion of 10,000 homes in FY21, following the 6.3% year-on-year volume growth in H1 FY21.
• The 5.8% year-on-year growth in average selling price during H1 FY21 coupled with increased volume, boosted the H1 FY21 revenue by 12.5% on H1 FY20.
• The Group experienced solid underlying demand, and thus, the private reservation rate reached 156 per week, representing a 3.3% increase on H1 FY20.
• As of 31 January 2021, the balance sheet remained strong with net cash of £346.4 million. Therefore, the Company reinstated its dividend at 35 pence per share (H1 FY20: Nil).

Financial Ratios (H1 FY21)

Share Price Performance Analysis

 (Analysis done by Kalkine Group)

On 28 June 2021, at 8:05 AM GMT, Bellway PLC’s shares were trading at GBX 3,277.00, down by 0.67% against the previous day closing price. The stock made a 52-week High and Low of GBX 3,756.00 and GBX 2,059.00, respectively.

BWY’s stock price is hovering around the lower standard deviation of the Bollinger Bands. Meanwhile, the momentum indicator 14-day RSI (31.64) trades in the oversold territory at the current levels. Despite the recent consolidation in prices, BWY’s stock price is still sustaining significantly above the 200-day SMA (GBX 3,055). Adjacently, the MACD line trades below the centreline and forms a negative crossover with the signal line.

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative)

Business Outlook Scenario

Bellway continued to perform well in H2 FY21 and experienced robust demand for its high-quality new homes. Due to house price inflation, the pricing environment also remained positive. It expects that the demand for new homes will remain robust for the remainder of the fiscal year, as the sector has been benefitting from the low lending rates and government support measures. For FY21, it anticipates completing around 10,000 homes (FY20: 7,522 homes), while the average selling price is likely to soar further, over £300,000 (FY20: £293,054). Moreover, the Group also expects a gross margin improvement in the year ahead with strong cost control. In a nutshell, Bellway has a strong order book, robust investment in land acquisition, and substantial resources in place to navigate through the challenging phase of the pandemic and generate long-term value for shareholders.

   (Source; Company Presentation)

Based on the strong trading momentum, robust forward sales position, disciplined investment in high quality land opportunities, strong cost control, solid financial position, promising sector prospects, with support from the valuation as done using the above method, we have given a “BUY” recommendation on Bellway PLC at the current market price of GBX 3,277.00 (as on 28 June 2021 at 8:05 AM GMT) with lower double-digit upside potential based on 11.78x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.). 

*All forecasted figures and Industry Information have been taken from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

*The reference data in this report has been partly sourced from REFINITIV.

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