The predicted Brexit bloodbath has failed to arrive for the UK housebuilders – aside from the lone troubles of Bovis Homes PLC (LON:BVS) – with Bellway PLC (LON:BWY) the latest to report robust numbers in the sector.
With over a 2% rise this morning following its first-half results, Bellway’s shares on the FTSE 250 index now stand above where they were before June’s Brexit vote.
The likes of Taylor Wimpey PLC (LON:TW.) and Persimmon PLC (LON:PSN) – which both posted full-year results at the end of February - are also back to pre-EU referendum levels.
READ: Bellways posts robust rise ...
Meanwhile Redrow plc (LON:RDW) has surged well past that level helped by its half-year numbers at the start of last month.
Bovis is the only laggard, after issuing a profit warning at the end of December and revealing the departure of its chief executive soon after, leaving itself open to a takeover as a result, with Redrow and Galliford Try plc (LON:GRFD) both having seen their approaches rejected last week.
Neil Wilson, senior market analyst at ETX Capital, said: “It’s a far cry from June. To all those who bet against UK housebuilders in what was a bloodbath for the sector on June 24th, the last few months have been a lesson in fundamentals.”
Help to Build …
In a note to clients, he noted that Bellway issued “a very impressive set of half-year results”.
He added: “Bellway points out that ‘Help to Buy…continues to support volume growth in the new build sector’. That is an understatement.
“Help to Buy was used in almost 35% of completions – up from 29% in 2016. It’s no wonder it’s being dubbed Help to Build for its part in supporting the housebuilding sector in recent years.”
Wilson said: “Part of it is down to the resilience of the UK economy and in particular the continued strength of consumer spending and confidence.
“The Bank of England played its part too in slashing interest rates to help boost confidence and ensure access to credit was not about to be a problem. This was an important signal at the time. Mortgage rates and availability remain very supportive.”
“But,” he added, “the most important factor is the fundamental mismatch in the property sector between supply and demand, which across large parts of the country continues to exert upward pressure on selling prices faster than wages can keep pace.
“Coupled with Help to Buy and low rates it means housebuilders couldn’t ask for better conditions right now. They can safely invest in new plots and new builds and know they’ll fill the order book.”
Skilled labour lacking …
The ETX analyst also said it is interesting to note that the only thing Bellway’s management thinks can hold back growth in 2017 is a lack of skilled labour and some tight build schedules.
He said: “This bodes well for the year ahead – volume growth of 5% looks very achievable. What happens when the UK leaves the single market – and access to all that cheap, skilled labour, is another matter.”
However, in a note to clients on Bellway, Shore Capital analyst Robin Hardy said the “tone of the outlook statement does feel a little cautious pointing to uncertainty around Article 50 and the potential impact on labour sourced from the EU.”
Flat margins indicated …
Hardy added: “The increasing pressures on the margins from costs beginning to rise faster than average selling prices reflect in the board only indicating flat margins in H2 and the step up in the use of help-to-buy from 29% to 35% of sales indicates weakening affordability.
“This is likely to weaken further through 2017 as core inflation steps up and the rise of rising mortgage rates increases.”
“However,” he pointed out, “as regards FY2017, essentially all sales needed to make this year’s numbers have already been sold and only issues with build and delivery could upset this.”
The analyst added: “The statement is not especially positive and does not advance forecasts but the mention of robust demand and the order book strength are likely to be enough.”
But he said: “After a strong Q1 and with foundations for this now material pick-up looking fairly shallow, perhaps it is time to start looking at taking some profit as we pass into Q2 when we will undertake a wider review of valuations in the sector.”