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Bellway expects record annual earnings but warns on house price growth slowdown

Bellway said the rate of house price inflation has “moderated”
The pricing environment is “stable", Bellway said

Bellway PLC (LON:BWY) said on Wednesday it expects “another year of significant earnings growth” but warned that a slowdown in house prices has put pressure on margins. 

In a trading update for the year to July 31, the housebuilder said it completed the sale of 10,307 new residential dwellings -- marking the first time it has ever topped 10,000 homes and a 6.9% increase on the 9,644 it completed last year.

READ: Bellway reiterates 10,000 home target as trading environment remains favourable

Some 80% of the completions were private homes, compared to 78% last year.

The company estimates revenue growth of 16% to nearly £3.0bn after reporting £2.5bn the previous year.

House price gains ease

But the operating margin is expected to dip to 22.0% from 22.3% as house price growth has eased.

Bellway said the rate of house price inflation has “moderated” and higher value homes have “at times, experienced slower sales rates and occasionally required a greater use of incentives”, although it has limited its exposure to the upper end of the market.

The pricing environment is “stable, with many sites still able to achieve low, single-digit increases, predominantly for affordably priced homes, located in areas of strong demand”, the group added. 

Even with the slowdown, house price gains continued to offset cost increases, but margins have started to abate nevertheless.

"Despite all the worries about a softening housing market, the market conditions for new homes of the sort Bellway makes remains very accommodative," said Neil Wilson, chief market analyst at

"If Bellway is a bellwether for housebuilders, we could be about to see a turnaround in share price performance. Bellway is down more than 20% from October last year and a rally is on the cards.”

Help to Buy and low-interest rates support demand

Bellway said demand for affordably priced homes was supported by the government’s Help to Buy scheme and low-interest rates. The group pointed out that interest rates remain close to a historically low level despite last week’s hike by the Bank of England.

Reservations for new homes averaged 200 per week, compared to 187 per week last year, driven by a strong first half when there were plenty of site openings.  The second half slowed with reservations of 168 per week, the same rate as last year.

Bellway purchased 12,962 plots across 100 sites in desirable locations with high demand, up from 11,613 plots across 97 sites in the prior year.

The forward order book stood at 4,841 homes valued at £1.3bn. While that was higher than the forward order book of 4,749 homes last year, the value of those homes changed little.

Strong cash position and new earnings record

It ended the period with net cash of $99mln, up from £16mln in 2017.

“The group has set a new earnings record and yet, having invested significantly in land, has ended the year with a strong net cash position,” said chief executive Jason Honeyman.

“Trading has been robust and notwithstanding wider political and economic uncertainty in the UK, Bellway has both the financial and operational strength to respond opportunistically to future changes in market conditions.”

Shares fell 2.9% to 2,890p in morning trading. 

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