Bellway - IMS

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Bellway is a stock I have written about before when I built up my holding at similar levels to today's price and  when I addressed the benefits of Help to Buy. They have today announced an interim management statement for the period from 1st February 2014 to 31st May 2014. This showed some continued growth with the highlights from the statement being as follows:


* Strong sales performance with an 11% increase in the weekly reservation rate to 177 per week during the period (2013 - 160 per week).
 * Value of forward order book of homes due for completion beyond 31 July 2014, significantly ahead at £670 million (31 May 2013 - £380 million). 
 * £400 million expended on land and land creditors since 1 August (2013 - £ 270 million), providing an excellent base for future growth. 
 * Strong balance sheet maintained with net bank debt of only £47 million (31 May 2013 - £95 million). 

They also said they are well placed to continue with their volume growth and they have consented land in place already to meet their growth aspirations for next year. On the outlook for this year they flagged a likely 20% increase in  legal completions with average prices of £210,000 and  margins progressing up to 17% thanks partially to lower incentives. They also said the Group has reservations in place to achieve the current year volume growth target and forward order book of reservations is £290 million higher than last year at £670 million. 

So all in all a positive update as you would have expected given the recent news on the housing market - it will be interesting to see how Mr Market takes this as he has been a bit down on builders recently as you can see from the chart below. Now I'm not really a chartist - I just like to use them to see where a stock has been and in this case recent major lows have been in the 1200 to 1250 pence area while the recent peaks were up at 1700 pence versus the current 1400 pence or so. Chartists would though point to the price being below moving averages which are turning down and the 50 day is about to make a dead cross with the 200 day so perhaps I should be more worried?

Fundamentally this has left them looking excellent value on around 8x with a yield of over 4% based on the strong forecast growth for the current year and the year to 31st July 2015, although that is before any changes on the back of this update and it is a house builder after all. I suppose investors have been worried recently about a bubble in the housing market (probably only in London so far) and the likely negative effects of an interest rate rise when that eventually arrives. In addition with the General Election due in May next year I suppose the Help to Buy scheme which has pumped up the volume for house builders could also come under an earlier review given the controversy surrounding it, or even be scrapped or amended by a new government. So some uncertainties, but for the next year at least it seems to me they will still have some strong foundations for their business in place, so I'm inclined to stay in this one for now. 

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