IT was Mark Twain who said “Buy land, they’re not making it any more”, and it’s clearly something housebuilder Bellway (BWY) has taken to heart.
At the last count it had agreed deals for a record 19,819 new plots in the year to the end of July last year, strengthening its land bank to 86,571 plots.
During the second half of the last full year and up to January this year Bellway set a new company record for completed homes too, but it’s not resting on its laurels. The housebuilder said it has plans to deliver 12,200 homes every year over the next two years — 20% more than last year, a time during which it doubled pre-tax profits to £479 million on the back of a 40% increase in revenue to £3.1 billion.
Oli Creasey, a property analyst at Quilter Cheviot, notes that completed homes – up 0.7% – may have only risen marginally compared to the same period last year, but “this was comparable to a highwater mark and took some beating, which is all the more impressive.”
What may be of more interest though to investors is that Bellway is on target to see the volume of properties it builds rise by 10% for the full year and the same again in 2022-23.
That may sound quite ambitious in such an uncertain economic climate, but Bellway has already set out its vision to build as many as 18,000 homes a year by the end of the decade.
Creasy says: “Bellway [has], like other housebuilders, experienced inflationary pressure throughout the supply chain, but managed to keep a lid on costs, and improved the company’s operating margin to 18%, with guidance for further improvement to profitability in the second-half of the year.”
Whether greater property volumes will equate to an increase in operating profits, remains to be seen, especially when factoring in an expected 4% dip in the average selling price for the coming year. Analysts at Jefferies describe a “normalised” operating margin target of between 18% and 19% before inflation, as “reassuring”, if “unlikely to excite”.
When you factor in its share price, which is currently about 25% lower than its pre-pandemic peak, and still down 16% over the past year, it starts to look like a potential hedge against inflation. And it could be one of the better bets in the housebuilding sector; at a price of 8.5 times next year’s forecast earnings, it is undervalued compared with its peers.
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