Bellway update arrives as housebuilders attract support amidst subdued market

Bellway PLC is set to release its Q3 trading update on June 10th, with investors focused on progress towards full-year targets amidst an uncertain housing market. The update is expected to show progress on completions, selling prices, and margins, building on a strong first half that saw a 12% rise in pre-tax profits and an 11.9% increase in housing completions; management previously guided for over 10% growth in completions to at least 8,500 homes and a stable average selling price of around £310,000. Analysts will also be scrutinizing the order book and commentary on build cost inflation, with major investment banks recently expressing bullish sentiment on the housebuilding sector, citing undervaluation and supportive government policies.

Analysis

Bellway PLC's upcoming third-quarter trading update on June 10th is anticipated with keen interest, particularly regarding its trajectory towards achieving full-year targets amidst a housing market characterized by subdued activity and interest rate uncertainty. The company demonstrated robust performance in the first half, reporting a 12% increase in pre-tax profits to £150.2 million and an 11.9% rise in housing completions to 4,577 homes. Management has guided for continued momentum, projecting over 10% growth in annual completions to at least 8,500 homes, a stable average selling price around £310,000, and a 100 basis point improvement in operating margin to 11%. Evidence of market improvement was noted by CEO Jason Honeyman, citing increased customer enquiries and reservations since the start of the year, with first-half reservation rates rising to 0.51 per outlet per week and accelerating to 0.76 in the subsequent seven weeks. Key areas of scrutiny for the upcoming update will include the order book, which stood at £1.6 billion (approximately 5,600 homes) as of December, alongside commentary on build cost inflation and any further legacy remediation provisions. Despite shares trading approximately one-third below pre-COVID levels, Bellway's valuation at 0.93 times book value is below the sector average, suggesting potential relative value. Consensus forecasts indicate a significant rise in full-year pre-tax profit to £267 million from £184 million and an increased dividend of 64.7p. This outlook is supported by bullish sentiment from major investment banks like JP Morgan, which identified Bellway as a top pick, and Deutsche Bank, both highlighting sector undervaluation and potential benefits from supportive government housing policies.

Key Decisions for Investors

• Investors should monitor the Q3 update for confirmation of continued progress on completions and margins, and for any revisions to full-year guidance, particularly in light of the reported pick-up in reservation rates.
• Consider the current valuation of Bellway at 0.93 times book value, which is below the sector average, as a potential entry point, especially if the upcoming trading update substantiates the positive outlook and strong H1 performance.
• Pay close attention to management's commentary on build cost inflation, the status of the order book, and any further legacy provisions, as these factors could significantly impact future profitability and investor sentiment despite the current bullish sector outlook from analysts.