25th Mar 2015 12:24
LONDON (Alliance News) - Shares in housebuilder Bellway PLC rose on Wednesday after it reported a steep increase in pretax profit and revenue for the first half of its financial year, boosted by a rise in completions on the back of resilient London property market, and said the good performance has continued in the first months of the second half, defying widely-held fears about a slowdown in the UK property market.
The company's shares were up 4.3% on Wednesday to 2,089.52 pence, one of the best performers in the FTSE 250, after it said its pretax profit rose to GBP158.9 million in the half-year to the end of January, up from GBP103.8 million a year earlier.
Revenue increased to GBP831.2 million from GBP700.4 million, with completions increasing by 16% to 3,754 from 3,245, while the average selling price rose to GBP219,300 from GBP212,100. Bellway said its gross margin improved to 23.5% from 19.7%, boosted by new, higher margin land acquired in recent years, along with sales price inflation in London.
The rise in profit prompted the company to lift its interim dividend payout by 56% to 25 pence per share from 16 pence.
Bellway also said reservations between February 1 to March 8 averaged 152 per week, compared with 138 per week in the equivalent period in 2014, and its order book had increased to 4,794 homes on March 8 with a "record" value of GBP1.12 billion, up from GBP829.5 million a year earlier.
"The strength of the spring selling season and the effect of the general election in May will, in part, determine the rate of growth of the business in the second half, however, this strong forward sales position should enable the Group to achieve volume growth in excess of 10% in the current financial year," it said.
Bellway said the London housing market remains resilient, with revenue from the capital up 16% to GBP203.2 million in the first half of the financial year.
It said it spent GBP355 million on land opportunities in the half, up from GBP240 million a year earlier, increasing its land bank to 35,837 plots from 35,434 at the end of its 2014 financial year in July.
"Bellway has achieved another tremendous set of results, taking further market share by delivering a growing contribution to the supply of much needed new homes. Our strong balance sheet and operational capacity has facilitated significant investment in land over recent years," said Chairman John Watson.
"This investment, together with our expanding divisional structure, has allowed the group to respond to ongoing customer demand, resulting in record half year earnings and a further significant improvement in return on capital employed," said Watson.
Its return on capital employed increased to 22.8% in the first half, from 17.0% a year earlier.
Numis analyst Chris Willington said Bellway's results were ahead of the broker's expectations, with the order book looking particularly encouraging.
"Overall, this is a very strong update, and the fact the group has seen an increase in its order book since the last update shows it is selling faster than it is completing. This bodes well for the group's ambitions of long-term volume growth." Millington said.
Numis retained its Buy rating and 2,593.00 pence price target, arguing Bellway is very well placed to grow volumes in a risk averse manner. Numis acts as a broker to the company.
But Shore Capital's Robin Hardy disagrees, citing disappointment with what he considers a lack of ambition on Bellway's part.
"Although the increase in bank facilities may indicate that Bellway aims to grow a little faster than the targeted 10% volume, the message overall feels more 'steady as we go' than being prepared to push a little harder into a market climate which is ripe for the ambitious to expand," he said.
Bellway said it had increased its total committed bank facilities to GBP400 million from GBP300 million since the end of January, giving it more capacity to invest in land and work in progress "should market conditions remain favourable".
Hardy added he had expected earnings growth in 2016 and 2017 for Bellway to be ahead of consensus, but now thinks this is unlikely to happen.
Shore maintained its Hold rating on the company and Hardy added: "Unless we can begin to see more rapid growth in volume or gross margins (the board suggests this will be difficult) it is not easy to see any change in stance."
By Sam Unsted; [email protected]; @SamUAtAlliance
Copyright 2015 Alliance News Limited. All Rights Reserved.
Related Shares:
Bellway