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Bellway's strong update prompts upgrade from Numis Securities

Management has increased its volume growth guidance from ‘at least 5%’ to +6%
House builder
Bellway said the cancellation rate, a barometer of customer confidence, remains low at under 11% (2017 – under 12%)

The government’s “Help to Buy” continues to work its magic for house builders, with Bellway PLC (LON:BWY) the latest to report strong trading.

In the six months to the end of January 2018 housing revenue rose by more than 14% from a year earlier to around £1.3bn on the back of a 6.3% rise in housing completions to 4,741.

READ: Bellway positive as full year revenue rises 14%

The “Help to Buy” scheme was supposed to help first-time buyers get on the housing ladder, but with Bellway reporting a near 7.8% year-on-year increase in its average selling price to a record £276,000 it would appear that its main effect has been to inflate house prices.

Market conditions continue to be favourable and customer demand for new homes remains strong, Bellway said in its statement. 

Web site traffic and visitors to sales outlets were both ahead of the corresponding period of the previous year, Bellway revealed.

“Bellway is continuing to make a sizeable contribution to the supply of much needed new homes and has delivered a further increase in both volume and average selling price in the six month trading period," said John Watson, the executive chairman of Bellway. 

“Significant investment in land, together with ongoing plans to expand the divisional structure, should lead to a further increase in output and hence result in additional value creation for our shareholders,” he added.

Broker Liberum said Bellway had joined sector peer Redrow in reporting a solid start to 2018.

“We expect a small increase in consensus estimates as management has increased its volume growth guidance from ‘at least 5%’ to +6%,” Liberum said, as it reiterated its ‘buy’ recommendation.

READ: Bellway sees strong growth in housing revenue, volumes as worries over Brexit, election result fail to impact

Numis Securities upgraded the stock from ‘add’ to ‘buy’ after a trading update that highlighted the momentum in the business.

“With management creating additional capacity from new regional office openings, we think Bellway can continue seeing strong profit growth into the foreseeable future,” the broker said.

The broker has tweaked its average selling price and volumes assumptions, prompting a 2% upgrade to its profit before tax estimates for fiscal 2018 to £635mln. Numis is now forecasting Bellway will end the year with net cash of £50mln; previously it had projected net debt of £12mln.

“Whilst we have left 2019 estimates unchanged, we would note that if market conditions remain unchanged and Bellway continues to execute well, then the risk to forecasts remains on the upside for both 2018 and 2019,” Numis continued.

Shares in Bellway were down 0.3% at 3,304p in mid-morning trading in a market down 0.8%.

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