- Housebuilder’s full-year update shows better-than-expected cash flow and higher-than-forecast net cash pile
- Margins a little weaker than anticipated
- Outlook remains cloudy with no uptick in reservation rates
- Management calls for government to do more to boost demand
- Shares still trade below net asset value, and balance sheet is strong
“Bellway’s full-year trading update shows that the company is working hard to sweat its balance sheet and keep cash flowing, albeit at the expense of margins as management uses discounts to boost sales and whittle down inventory, but times remain tough and the outlook statement will do nothing to change analysts’ views that profits are likely to fall in the year to July 2027,” says AJ Bell investment director Russ Mould.
“Management’s call for government help for the industry, with assistance for first-time buyers and a programme for social housing, may chime with the policy aspirations of both Prime Minister Andy Burnham and restored Housing Secretary Angela Rayner, but they will have to fathom how to fund any programmes and may be wary of the sort of Help to Buy largesse which did so much to enrich housebuilders’ management teams and shareholders in the 2010s.
“Bellway actually completed on more homes than expected in the year to July 2026, with an 11% increase to 9,695.
Source: Company accounts
“This is the highest figure in three years but is well below 2022’s peak of 11,198, achieved just as the Bank of England started to increase interest rates, with the inevitable knock-on effect upon bond yields and mortgage rates.
Source: LSEG Refinitiv data, Bank of England
“Financial markets are still pricing in two, or maybe even three, more one-quarter-point interest rate increases from the Monetary Policy Committee to 4.25% or 4.50% by summer 2027, so builders and would-be housebuilders may get little succour if that forecast proves correct.
“Planning regulations remain a further bugbear for housebuilders, who will also be keeping an eye on any further costs related to the 2022 Building Safety Act, launched when Michael Gove was housing secretary and which has thus far obliged the listed builders to put away some £4 billion to cover cladding remediation and compensation schemes.
“As such, it is no surprise that Bellway is calling for government assistance. It is unclear whether the government has the money or the time for anything too ambitious, even if the new Prime Minister wants to build 500,000 council houses by 2030, although some form of Help to Buy, perhaps via an equity loan scheme, could be one avenue to explore.
“The government will no doubt be aware, however, 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.
Source: Company accounts for Barratt Redrow, Bellway, Berkeley, Crest Nicholson, MJ Gleeson, Persimmon, Taylor Wimpey, and Vistry
Source: Company accounts for Barratt Redrow, Bellway, Berkeley, Crest Nicholson, MJ Gleeson, Persimmon, Taylor Wimpey, and Vistry
“Nor did Help to Buy ultimately solve the long-term issue of affordability, as house price growth more than matched wage growth during its lifespan from 2013 to 2022, a situation aggravated by higher interest rates this decade.
Source: Office for National Statistics
“It did at least help the listed UK builders complete on over 200,000 homes through the scheme and generated valuable income for the Exchequer via loan interest, let alone income tax and corporation tax, but that boom has well and truly ended.
“This can be seen in how the earnings and dividend forecasts for the builders continue to seep lower, and they respond to difficult trading conditions by reining in land buying, cutting expenses to help them deal with input cost inflation and also using incentives, or discounts, to shift inventory from their balance sheets to free up cash.
“Bellway has proved adept at this in the past year, and the biggest surprise from the trading update is how net cash stands at £158 million, higher than a year ago and also better than analysts had been expecting.
Source: Company accounts
“The discounts do affect profit margins and analysts believe Bellway’s profits will dip in the year to July 2027 as it seeks to boost demand and release further cash from inventory.
Source: Company accounts, Marketscreener, consensus analysts' forecasts
“That extra cash will help to fund dividends and also share buybacks, where Bellway spent £150 million in the year just ended, and has launched a fresh £50 million programme for the year just begun.
“The buyback makes sense in the context of a share price that stands well below Bellway’s last stated tangible net asset value, or book, value per share.
“As such, the buyback and lowly valuation may also provide some degree of downside protection for investors wishing to tough out the current difficult market, in the view that housebuilders’ shares can trade a lot closer to two times book value when the good times roll.”
