$BWY - Bellway - Pre Close Trading Update

As regular readers will know this UK housebuilder is one I have written on in the past several times, or see the Categories list at the side of the blog. They have had a an update today which as you would expect with all the talk about house prices rising is very positive. The key points are as follows:

• Volume growth of 21.2% with 6851 completions v 5652.
  
• Average selling prices +10.3% to £213,000 v £193,025 on the back of mix changes and price increases.
• Full year revenues +33% to £1460 million v £1091 million, just ahead of forecasts of £1453 million.
  
• Forward sales +36% to £924.3 million v £679.5 - so continuing this years strong sales momentum.
• Spent £460 million on land v £300 million +53.3%, means it is well positioned to deliver further growth in volume, having secured all of its land requirements for the year ahead.
  
• Moved to a net cash position with £5m cash on balance sheet v £5.8 million of debt last year, thereby maintaining its ability to respond to future opportunities in the land market.

Ted Ayres, Chief Executive, commented: "The Group has reacted positively to the continued strength of the UK housing market, significantly increasing output to satisfy customer demand. The favourable trading environment, together with the Group's national presence and strong balance sheet, ensures that Bellway is well positioned to continue its growth strategy and this, together with a strong focus on return on capital employed, should lead to further enhancements to shareholder value."

On the housing market they acknowledged the on going support provided by the help to buy scheme and that they were seeing the normal seasonal poattern of a slower summer after a strong spring selling season. They mentioned the Mortgage Market Review but suggested that this had had a limited impact apart from a few minor delays in processing some mortage applications.

Summary & Conclusion
Another positive update, as expected given market conditions, but it is encouraging to see on going momentum and a strong order book. I like this one for its national presence, conservative management and improving opertaing statistics which of course you would expect at this stage of the cycle. Given the on going governement support and the Bank of England being reluctant to raise rates too aggresively, it seems to me that the housing market should remain reasonably well supported. However, I guess some would disagree and continue to see house prices as extended and over due a correction. Obviously if that is your view then you would not want to touch a housbuilder, but I'm prepared to run with it as it is on less than 10x this years earnings with a yield of 3.3% which is 3x covered. More strong growth is expected for next year with the P/E expected to fall to 8x and the yield to rise to around 4%. This appears to be well underpinned by the forward order book, their land bank and the on going strength in the housing market which may be spreading out from London and the South East to a town near you soon - and maybe even somewhere like Doncaster. ‘The question is whether the scale of this disparity will decline over time or become further entrenched,’ said LSL on the gap between London and the rest of the UK. who produced the latest report on house prices mentioned in the first article above from which the graphic below is taken. If all this talk of house prices is depressingly familiar to you and as it is the silly season you could alway checkout my tongue in cheek post from earlier this year if you missed it  called Let's Do The Sub Prime Warp Again!

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