Bellway PLC

Bellway PLC (LON: BWY) is an FTSE 250 index listed Company, which is engaged in the construction and selling of homes as well as providing houses to several housing associations.

The shares will go ex-dividend on 19 May 2022.

Investment Rationale – Buy at GBX 2,479.00

• Bright Industry Prospects: The UK house market is still in great shape as supply is tight and borrowing costs remained relatively low despite the recent rate increase by the Bank of England. British house prices continued to grow in March 2022, despite the end of pandemic emergency support measures. Moreover, British construction output maintained strong growth last month.
• Positive Outlook: Bellway remained on track to generate long-term returns for the shareholders with a substantial order book, strengthened land bank, and significant balance sheet.
• Dividend Growth: There was a 28.6% year-on-year growth in the interim dividend, which is scheduled for payment on 1 July 2022.
• Investment Capacity: With net cash of £195.8 million at the end of H1 FY22, the Group has financial resilience and the capacity to invest for further growth.
• Positive Demand and Price Dynamics: The average selling price rose by around 2.8% from £303,206 in H1 FY21 to £311,800 for H1 FY22. BWY had also boosted the demand levels with an approximate 5.8% increase in the overall reservation rate to 202 per week.
• Positive Technical Indicator: The stock price is close to the lower Bollinger Band, while the 14-day RSI (~37.84) is confirming the oversold position.
• Undervalued Multiples: On a forward 12-month basis, key valuation multiples (EV/Sales, EV/EBITDA, Price/Book, and Price/Earnings) are quite lower than the Median of the Homebuilding & Construction Supplies industry.

Key Risks

• Gloomy Outlook: The prospect of higher interest rates and a high living cost can reduce demand and squeeze the profit margins of home builders.
• Macroeconomic Risk: The Russian invasion in Ukraine has already jolted the market, while the slow retail growth and battered consumer spending in the UK amid rising fuel costs can keep the equity market under pressure.

Interim Results (for the six months ended 31 January 2022, as of 29 March 2022)

(Source: Company Website)

• Financial Growth: The strong revenue growth and margin improvement driven a strong set of financial results in H1 FY22.
• Strong Balance Sheet: It ended H1 FY22 with net cash of £195.8 million, reflecting financial resilience and capacity to invest for further growth.

One Year Share Price Chart

 (Data Source: REFINITIV, Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY23E) 

*Peers: Taylor Wimpey PLC, Barratt Developments PLC, Countryside Partnerships PLC, and Springfield Properties PLC.

*All selected peers are LSE-listed Companies from the UK Construction sector.

Conclusion

With a substantial order book, robust balance sheet, strong land bank, and forward sales visibility, the Group expects to deliver an annual output of around 12,200 homes in financial year FY23.

Markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Considering the strong order intake during H1 FY22, strong growth in dividend payments during FY21, robust profitability, and 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 2,479.00 (as of 27 April 2022, at 12:35 PM GMT+1), with lower-double digit upside potential based on 7.01x Price/NTM Earnings (approx.) on FY23E earnings per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’ 

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

Disclaimer

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332. Kalkine Limited is authorised and regulated by the Financial Conduct Authority under reference number 579414.

The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation.

Kalkine does not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation. Kalkine’s non-personalised advice does not in any way endorse or recommend individuals, investment products or services for your personal financial situation. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional authorised financial planner and adviser. You should be aware that the value of any investment and the income from it can go down as well as up and you may not get back the amount invested.

Kalkine Media Limited, an affiliate of Kalkine Limited, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.