Housebuilder Bellway PLC (LSE:BWY) reported improved profits in the six months to January, as higher house prices helped counteract cost inflation and production challenges caused by supply chain constraints in the wider industry.
The interim dividend was hiked to 45p per share from 35p in 2021 but the FTSE 250-listed company said it intends to reduce dividend cover to around 2.5 times underlying earnings by 31 July 2024, which it said is a prudent and sustainable level.
Half-year revenue rose by 3.5% year-on-year to £1.78bln and underlying profit before taxation was up 8.9% at £327.2mln.
"Costs pressures persist across the wider sector, but overall, cost inflation has been offset by house price gains," said chief executive Jason Honeyman.
He said inflationary pressures are expected to continue in the year ahead as a result of materials shortages, rising fuel prices and wage costs, adding that the war in Ukraine could exacerbate these challenges. However, "we generally expect these to be offset by further revenue gains", he noted.
Bellway said the underlying operating margin improved to 18.7% in the first six months (2021: 17.3%), driven by 'price optimisation', disciplined cost control and efficient absorption of overheads, due to the strong first-half revenue performance, when some 5,694 new homes were completed.
With an order book comprising 7,491 homes and a value of £2.2bln, the company said it expects demand for new homes to remain robust for the remainder of the year, while the average selling price is now expected to be over £305,000 from £306,479 a year ago.
“This provides confidence that Bellway can deliver strong volume growth of around 10% to over 11,100 homes this financial year,” it said.
But full-year underlying operating margin are expected to ease to 18.5%, down on the first half but still up from 17.0% a year earlier.
“Our substantial order book, strong land bank, and significant balance sheet capacity supports our growth strategy and medium-term target to deliver annual output of around 12,200 homes in financial year 2023,” the company added.
Bellway said its strong balance sheet and net cash of £195.8mln provided it significant financial resilience and capacity to invest for further growth.
In mid-morning trading, Bellway shares were down more than 2% at 2,545.66p.