- Housebuilder talks down volumes and profit margins for the year ahead
- Forward order book already covers half of new year’s forecast completions
- Net cash pile also offers downside protection
- New £150 million share buyback re-emphasises the stock’s lowly valuation
- Government scheme to help first-time buyers could boost sentiment
“Lower volumes, increased costs and flat prices is not an inspiring outlook for its new financial year, but shares in housebuilder Bellway are up all the same, thanks to a new £150 million share buyback that serves to re-emphasise just how cheap the shares may prove to be, if, as and when any housing market recovery kicks in,” says AJ Bell investment director Russ Mould.
“A new government programme designed to help first-time buyers of new-build houses could help here, as could lower interest and mortgage rates, even if over the long run affordability is the key issue, and the solution here is much higher wages, lower house prices or something, somewhere between the two.
“Bellway’s very detailed trading update back in August means that the results statement for the twelve months to July contains no great surprises and places greater importance on the outlook statement for the year to July 2027.
“At first glance, the news is not great.
“Chief executive Jason Honeyman is forecasting a drop in completions to somewhere between 9,000 and 9,400 houses, down from 9,695 in the year just ended. Sluggish demand and the mix between private reservations and bulk deals are expected to weigh on prices, while input costs are seen rising by some 3% to 4% in the coming year.
Source: Company accounts. *2027E completions is the mid-point of management guidance given alongside the full-year results for 2026. Financial year to July.
“The result of that will be a drop in sales and also profit margins.
Source: Company accounts. Financial year to July.
“It may be that Bellway is being sensibly conservative, given how financial markets continue to price in no fewer than four, one-quarter point interest rate hikes from the Bank of England by next July.
Source: Bank of England, LSEG Refinitiv data, analysts’ consensus forecasts
“Management will also be awaiting the details of government proposals to revive Help to Buy, in some way, shape or form.
“Ministers should be aware of how builders and their shareholders cashed in on Help to Buy, as share prices, profit, dividends and share buybacks rocketed across the quoted builders, as taxpayer-funded loans sluiced through the system.
“As such any new scheme may be more limited in scope and a return to the glory days of the mid-2010s for the builders may not be on the cards, especially as interest rates are now a lot higher than they were back then.
Source: Company accounts for Barratt Redrow, Bellway, Berkeley, Crest Nicholson, MJ Gleeson, Persimmon, Taylor Wimpey, and Vistry
“The lowly valuations now applied to builders’ shares suggests that investors are already braced for a long, drawn-out recovery, so investors may yet greet any initiatives designed to stoke an upturn in demand as an upside surprise.
“During the Help to Buy boom, all of the quoted builders’ shares traded well above historic tangible net asset, or book, value per share, with some afforded multiples of two times or more.
“Now only Persimmon trades at a premium and Bellway trades at a hefty discount. If investors believe the book value per share can be maintained, then they are effectively paying 65p for every £1 in assets on the company’s balance sheet when they buy a share.
Source: Company accounts, Marketscreener, consensus analysts’ forecasts, LSEG Refinitiv data
“In this context, Bellway’s second, £150 million annual share buyback scheme makes perfect sense, and the programme, coupled with an increase in the company’s dividend, helps to explain why the share price seems to be taking the downbeat outlook statement in its stride.
“Even though consensus analysts’ forecasts suggest that Bellway may trim its annual dividend payment in the year to July 2027, as a reflection of lower profits, the combination of the annual distribution and the share buyback equates to 10% of the builder’s stock market capitalisation. Such a hefty total ‘cash yield’ easily surpasses Bank of England base rates and the benchmark risk-free rate, as per the 10-year government gilt yield.
Source: Company accounts, Marketscreener, consensus analysts’ forecasts. Financial year to July 2027.
“Bellway’s robust balance sheet means it can afford this largesse.
“The FTSE 250 index member has £158 million in net cash on its balance sheet.
Source: Company accounts
“Management is also proving adept at sweating the balance sheet to release more cash. Bellway reduced inventory by more than £200 million in the year just ended and inventory days have come right down in the past two years. It may be harder to repeat the trick in the twelve months to July 2027 if demand stays slow and sales drop, although bulk deals and discounting could help, and that may also be why Bellway is warning of lower prices and lower profit margins.”
