Bellway soothes Brexit nerves for housebuilders

Higher-than-expected sales completions, a 13% jump in the weekly reservation rate and an increased order backlog are all chiming with investors in FTSE 250 house builder Bellway today, as the shares are trading up by more than 4% in early trading, to take them back to where they were in early 2016 before Brexit jitters began to hit home.
14 June 2017

Russ Mould, investment director at AJ Bell, comments:

“Chief executive Ted Ayres has flagged a likely 10% increase in house completions for the year ending on 31 July, up from previous guidance of “growth of at least 5%”, while average selling prices are expected to rise by around 3% to some £260,000, as management had previously expected.

“While the trading statement acknowledges the General Election result and the imminent negotiations with the European Union on Brexit, it does so a long way down the page – perhaps providing a tacit reminder to investors that profits and cash flow ultimately drive company share prices rather than political considerations and that the priced paid to access that cash flow will in turn dictate the return made from any shareholding.

“In this respect it is intriguing to see Bellway continue to trade at a discount to its sector peers on both forward/price earnings and price to historic net asset value per share.

“This may reflect the below-average dividend but earnings cover for the shareholder payment is over three times and the second best in the group, something which the relatively lowly rating may neglect.




Dividend cover



PE (x)

Dividend yield (%)


Price/book (x)

Barratt Develop.

10.0 x


1.45 x

1.5 x


8.6 x


3.02 x

1.8 x

Berkeley Homes

7.4 x


2.20 x

2.5 x


12.4 x


1.73 x

1.2 x

Countryside Properties

12.3 x


3.34 x

2.4 x

Crest Nicholson

8.8 x


1.96 x

2.0 x


11.1 x


1.71 x

2.7 x


8.4 x


4.47 x

2.0 x

Taylor Wimpey

10.0 x


1.39 x

2.1 x


9.9 x


2.36 x

2.0 x

Source: Digital Look, analysts’ consensus forecasts

“Bellway’s forward PE of 8.6 times also places in on a big discount the broader UK stock market’s 15 times rating, even though the builder offers a similar yield with better earnings cover (where the UK market average is around 1.7 times).

“Bellway’s business is well spread between North and South so it has no particular geographic exposure.

“However, the discount rating attributed to the stock (and the whole sector) relative to the UK market suggests investors are sceptical that earnings forecasts will be met, as they fret over what Brexit may eventually mean for demand and whether house prices are moving beyond the reach of too many potential buyers and what could happen, even allowing for the assistance provided by the Help to Buy ISA and Lifetime ISA for some.

“Yet earnings forecasts have moved sharply higher across the sector in the past six months, to suggest such concerns are unfounded for now and in the end money talks.

“If the builders keep delivering strong earnings and cash flows their shares should respond, supporting the view of those investors who argue that Brexit fears are overdone, the overall impact on the UK economy will be minimal and that domestically-facing sectors such as house builders, construction and real estate could offer value, even as the UK’s headline indices trade at or near all-time highs.”

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