Low interest rates and the government’s Help to Buy scheme have shielded housebuilders against the impact of Brexit uncertainty to a certain extent.
But house prices have cooled as consumer confidence remains subdued while a Brexit-driven decline in the value of the pound means cost pressures are rising.
Investors will therefore be keen to see how well mid-cap housebuilders Bellway plc (LON:BWY) and Crest Nicholson Holdings PLC (LON:CRST) have managed these challenges when they both update the market on trading on Tuesday.
Bellway has been trying to lower costs by improving building efficiency and taking a more cautious approach to land buying.
The cost cutting programme should be key focus of Bellway’s update along with any changes to its full-year guidance.
UBS expects Bellway to see 4.5% growth in annual volume to 10,775 units and a 2% rise in average selling prices to £209,700.
“Operating margins have previously been flagged to moderate to 21.5%, resulting in overall operating profit of £678mln and pre-tax profit £662mln,” the Swiss bank said in a preview.
“In terms of trading, we expect a similar pace in reservations to the earlier part of the year, namely a 4-5% increase in total sales, driven by an increase in site numbers which trended up 8% in the early parts of the year,” they added.
Margin pressures evident at Crest
Rival Crest Nicholson reports its first-half results Tuesday after publishing a trading update in May which flagged up some of the numbers.
That trading update showed Crest’s sales per outlet week (SPOW) was 0.78 in the half year to April 30, the same rate as a year earlier.
Forward sales on residential properties totalled £500.5mln, up 11% on the year-ago period.
UBS expects Crest’s completions to fall by 5% to 1,188, with the average selling price to be flat at £272,000.
The bank predicts operating margins to drop 2.5 percentage points to 14.7%, resulting in a pre-tax profit of £67mln.
“Key, in our view, will be that guidance for 2019 is held (consensus forecast for pre-tax profit of £150mln),” UBS;s analysts said.
“Given management transition we do not expect an update to strategy at this stage.”
In March, Crest revealed that it had hired the chief executive officer of construction firm Galliford Try, Peter Truscott, to take over as its boss from September.
Material growth expected for Halma
Elsewhere, full year results from Halma PLC (LON:HLMA) should be as impressively boring as the smoke detector and lift door sensor company itself.
A pre-close update ahead of the March year-end indicated that the FTSE 100-listed firm trading was in line with expectations, with growth in its Infrastructure division strongest, while there was good growth from Medical and Environmental Analysis and a “satisfactory” performance for Process Safety.
Halma’s management’s guidance then was for adjusted pre-tax profit in the range of £240.1mln-£253.4mln.
After a strong run in 2019, Halma’s shares trade on a lofty p/e ratio of around 33.1 times forecast earnings, according to analysts at broker Numis.
“We continue to like the shares from a long term perspective, but near term valuation appears full and we await a better entry point,” the analysts said in a preview, adding that coming first-half comparatives could prove tough given the rarity of all four sectors delivering material profit growth at the same time.
Motorpoint Group to keep ticking over
Further down the food chain, new and used car retailer Motorpoint Group PLC (LON:MOTR) will be hoping to prevent its shares reversing when it delivers full-year results on Tuesday.
The group already warned investors that a slower second half had put more pressure on its sales and margins in an April trading update, although it still expects to deliver a pre-tax profit increase of 10%.
The company’s bosses had also stayed cautious on the outlook for the current year, so investors will be hoping conditions have picked up in the first weeks of the new financial year.
Analysts at Numis are expecting Motorpoint to deliver few surprises in the annual results, instead they will eye any possible updates on the firm’s 13th site, which is due to open in the second half of 2019, as well as any comments on market trends and future capital allocation.
UK jobs in focus
On the macro front, the latest UK labour market figures will be released on Tuesday, with the 3 month average ILO unemployment rate expected to hold steady at 3.8%, according to economists at ING.
However, they forecast the more eagerly eyed weekly average earnings growth number, excluding bonuses, to dip to 3.1% for the latest three month period to end-April, down from 3.3% growth in March.
Significant events expected on Tuesday June 11:
Trading update: Bellway plc (LON:BWY)
Interims: Crest Nicholson PLC (LON:CRST), RWS Holdings PLC (LON:RWS), Oxford Metrics PLC (LON:OMG)
Finals: Halma PLC (LON:HLMA), Motorpoint Group PLC (LON:MOTR), Trifast PLC (LON:TRI), Oxford Instruments PLC (LON:OXIG), CML Microsystems PLC (LON:CML), Iomart PLC (LON:IOM), IG Design Group PLC (LON:IGR), BP Marsh & Partners PLC (LON:BPM), Augmentum Fintech Plc (LON:AUGM)
AGMs: Optibiotix Health PLC (LON:OPTI), Primary Health Properties PLC (LON:PHP), SigmaRoc PLC (LON:SRC)
Economic data: UK unemployment, average earnings data; US PPI