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Bellway warns of “more pronounced” pressure on profit margins

The housebuilder reported a 3% increase in profit before tax to £662.6mln for the past year

Bellway PLC -

Housebuilder Bellway PLC (LON:BWY) said it will face “more pronounced” pressure on profit margins in its new financial year due to flatlining house prices and rising costs.

The FTSE 250 group reported profit before tax of £662.6mln for the 12 months to 31 July, an increase of 3% on the previous year.

It had already revealed in a year-end statement that revenues were up 9% to £3.2bn from a 6% increase in the number of homes built to 10,892.

The dividend was increased 5% to 150.4p and the board said, with net cash doubling to £201.2mln, the company had “financial flexibility and capacity for future investment” and “further opportunity for dividend growth in the year ahead”.

Looking to the new financial year, Bellway said the weekly reservation rate in the nine weeks to 29 September had climbed 4% to 183, though this was down on the 210 seen over the past year, with completion volumes to moderate slightly from last year's 5.7% growth.

“This, together with a strong forward order book, provides a solid platform from which to deliver further, yet more moderate volume growth in the year ahead, assuming market conditions remain supportive,” it added.

Profit margins, which dropped last year, are sure to fall further in the new financial year, missing the one-off benefit seen from the Nine Elms development in the past year and Bellway saying this will combine with the current absence of house price inflation and industry-wide build cost pressures to have the pronounced effect on profits. 

Shares in Bellway fell 6% to 3,292p by early afternoon on Tuesday. 

Analysts at UBS said the sharper decline in operating margins was "concerning" and at first glance predicts consensus PBT "could drop 3-5%". 

Broker Peel Hunt downgraded its rating on the stock to 'hold' from 'add' after the 40% rise in the price in the year to date, saying: "While trading in the new financial year has been positive and new divisions should provide a tailwind to volumes in FY20, a further moderation in the margin leads us to reduce our PBT forecasts by 5-6%."

Liberum saw it as a "steady" start to 2020 and said Bellway remained one of its "top picks in the sector as its proven track record of volume growth is helpful in offsetting the margin pressure on earnings".

-- Adds share price and broker comment -- 

Quick facts: Bellway PLC

Price: 4020 GBX

LSE:BWY
Market: LSE
Market Cap: £4.95 billion
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