Builder Bellway gives bullish outlook

Bellway Homes chief executive Ted Ayres
Bellway Homes chief executive Ted Ayres
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Bellway, one of Britain’s best-known housebuilders, is confident that demand for new homes can withstand a coming interest rate hike after flagging record annual sales yesterday.

The bullish outlook came just a day after the Bank of England dampened expectations of a rate rise as soon as this year, though it is still expected to increase the cost of borrowing early in 2016.

Rates have remained at 0.5 per cent for more than six years, helping to drive a rebound in the housebuilding sector, but the sustained economic recovery has heightened expectations that they will need to go up in the coming months.

The Newcastle-based group, which has a major foothold in the Scottish market, said: “Demand for new homes has remained strong throughout the year, supported by more widely available and increasingly competitive mortgage finance.

“The Bank of England base rate remains at a historic low and notwithstanding the possibility of an interest rate rise, new homes remain a very attractive and affordable option for purchasers.”

In a trading update covering the group’s financial year to the end of July, Bellway said it sold a record number of new homes – with completions up by 13.2 per cent compared to a year earlier to 7,752 units.

It added that its average selling price lifted 5 per cent to around £224,000, year-on-year. The firm’s forward order book lifted by 4.7 per cent to 4,568 homes rising by 17.6 per cent in value to £1.1 billion.

Chief executive Ted Ayres told investors: “The group has continued to trade well, against a backdrop of favourable market conditions, delivering a record number of legal completions, whilst further adding to an already strong forward order book.

“We have made a substantial investment in attractive land opportunities and the group has the balance sheet and operational capability to invest further, thereby enabling Bellway to continue delivering additional and much needed new homes.”

The group opened its 17th division this month, in Kent, adding to its new office in the south west of England, which opened in February.

It added: “These new divisions further enhance the group’s capacity to deliver new homes in areas of high demand.”

Analysts at Liberum noted that sales growth had been uninterrupted by May’s general election. That is a factor that has been blamed by other firms for holding back business.

Meanwhile, in a note entitled “unrecognised potential”, analysts at Numis said: “Bellway’s full-year trading update is solid with all metrics slightly outperforming our forecasts.

“With the group now enjoying an improved level of visibility for 2016, given the strength of the forward order book; Bellway has improved volume, pricing and margin guidance.

“We still think there is scope for further upgrades if market conditions remain favourable and we do not think this, or the fact the group’s returns are top-quartile when normalising balance sheets across the sector, is factored into Bellway relative rating versus peers.”

Numis, which has an “add” recommendation on the shares, expects Bellway’s full-year pre-tax profits to jump 40 per cent to £344 million.