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Bellway lifts dividend as profits rise despite Brexit uncertainty and cost pressures

Bellway's margins have come under pressure from rising cost pressures but the housebuilder is taking action to deliver savings
Bellway completed 5.6% more homes in the first half

Bellway PLC (LON:BWY) lifted its interim dividend by 5.0% as low-interest rates, the government’s Help to Buy scheme and demand for affordable housing boosted profits.

The housebuilder said pre-tax profit increased 8.7% to £313.8mln and revenue rose 12.4% to £1.5bn in the first half ended January 31.

The company completed 5,007 homes in the period, up 5.6% on a year ago, and average selling prices gained 6.4% to £293,832.

READ: Bellway hails record first-half sales despite a rise in cancellation rates

However, the operating margin fell by 70 basis points to 21.5% with Bellway blaming rising cost pressures and the “reducing benefit of historical house price inflation” amid a slowdown in the market. 

Bellway expects the operating margin to remain at this level for the full year after which there is likely to be “gradual moderation” following year.

Bellway addresses weaker margins 

To mitigate cost pressures, the group said its new standard house type, Artisan, should result in design, engineering and procurement savings. A new accounting and valuation system will also be used to secure further savings through improved analysis, benchmarking and purchasing power.

With Brexit looming, Bellway said it is taking a more "cautious approach" to land buying and has temporarily slowed the rate of investment on a number of sites until there is more clarity over the outcome of the UK’s departure from the European Union.

In the meantime, conditions in the UK housing market remain positive with demand for affordable homes, high employment, good access to affordable mortgage finance and Help to Buy.

"These favourable market parameters, together with Bellway's disciplined investment in new sales outlets, led to a 2.8% increase in total reservations, net of cancellations, to 183 per week (2018 - 178 per week), the highest ever achieved by the group in a first-half trading period," said chief executive Jason Honeyman.

Bellway raised its dividend to 50.4p per share from 48.0p.

The group cut its net debt to £26.6mln from £131.4mln and expects to end the financial year with a positive net cash balance in excess of £150mln.

“While the forthcoming exit from the EU provides a degree of economic uncertainty, this strong balance sheet ensures that Bellway retains its ability to expand further by responding positively to opportunities in the land market as they arise,” said Honeyman.

Bellway has started the new financial year with a forward order book of £1.5bn.

The company expects to build up to 500 additional new homes this year.

It predicts further growth in completions but said: "The extent of this will depend upon the outcome of the spring selling season".

Bellway one of our top picks in the sector, says Liberum 

Liberum analysts said: "The second half has started well, suggesting risks may now be to the upside of consensus expectations for the full year.

"Bellway has extended its volume growth track record to ten consecutive years, without compromising quality or stretching the balance sheet and management has reaffirmed its commitment to continue this strategy."

The broker maintained a 'buy' rating and target price fo 3,500p on the stock, saying it thinks the shares look "good value".

It added: "This is still one of our top picks in the sector as its proven ability to grow volumes trumps margin pressure in this environment."

Shares rose 1.17% to 3,035p in morning trading. 



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