Bellway - BWY

[AsleepInYorkshire]

Bellway Homes
Bellway are due to complete on 11,100 homes during this financial year making them fourth largest volume developer by number. https://marketdata.youinvest.co.uk/1c6q ... 02_4402039

I am not suggesting that now is the time to buy any house builder. There are arguments for the house building market being cyclical and I don't want to get into them in this post. I'm more than aware of the dangers of this sector. I have worked in it for many years and part of my income is still generated from it. Currently I don't think the withdrawal of government support for buyers next March will hurt the industry. 16% of Bellway's sales last year were supported by government help to buy. Although Bellway aren't breaking this down they are saying that the largest part of this was in London and they have been reducing their exposure to this region. They also have some confidence that mortgage lenders and planned additional offices producing more sales will mitigate this. My view is that there has to come a time when the industry returns to a "normalised" trading environment and that's it.

They have stated that they are capable of reaching 18,000 units per year - https://marketdata.youinvest.co.uk/1c6q ... 07_4147804

It's this potential for growth which piques my interest. In recent years Bellway have been reinventing themselves and I feel they are doing a reasonable job of that. They claim on their website that over 90% of their customers would recommend them to friends. They also gather annual awards for Health & Safety at site level and NHBC Pride in the Job Awards. Despite the constant barrage of nay-sayers commenting that you should never buy a new home as they are not well built, the NHBC Pride in Job Awards are a very difficult award for a Site Manager to achieve and speak about the other end of the quality achieved within the industry. NHBC Pride in the Job Awards are a genuine mark of excellence.

Culture in building firms can often be depressive. Management sets targets that aren't viable. They beat their teams to death in an effort to achieve the impossible and ultimately build in their own demise. Quality is the first area to slip, followed by programme slippage and ultimately the impact is not only on customers but employees and shareholders. It's difficult for me to gauge how real the culture is within Bellway. I'm reliant upon the printed information. They appear to be well focused on their customer. They do not have an open sales office which people can just walk in. To view the sales homes an appointment has to be made to meet the sales representative. This is clever. Each potential customer can be treated uniquely. This will increase Bellway's conversion to sale.

I'm not a big fan of Trustpilot. Bellway has received 20% of reviews that are poor or bad. 78% have said they are great or excellent and 2% average. Comparing this with Bellway's claim that 93% of their customers would recommend them to a friend, there seems to be some evidence that they don't have an underlying issue with build quality. Bellway's 93% claim is taken from surveys carried out 8 weeks after customers have taken possession of their home. The Home Builders' Federation follow-up customer satisfaction survey, taken 9 months after completion gives a figure of 78.3%. This may suggest that Bellway's after sales service needs to be improved and in April '21 they introduced their "Customer First" agenda to include a single point portal of access for customers, more training for Bellway employees and subcontractors and more access for customers during the build phase.

Bellway have some legacy issues connected with cladding. They have created a company to deal with these and have appointed an MD. Apart from accounting purposes this will serve to ensure that no resources from within their Homes division are diverted to this cause. They have set aside £165m to date. I expect this will rise as further investigations are made.

I was going to bore you all with the fundamentals but that doesn't seem Foolish. Forward price to book value is below 1 and recently Blackrock increased their holdings to over 5%.

AiY(D)

[AsleepInYorkshire]

Slightly late, but as they say better late than never

Bellway announce £100m share buyback

• Dividend set to remain at 140p (as last year)
• H1 revenue rose by 1.6% to £1.81bn
• Pre-tax profit down 0.6% to £305.9m
• Moderate but sustained increase in reservations since start of Jan' '23
• On track to deliver 11,000 new homes, Last year 11,198
• Anticipate average selling price falling to £300K. Was £314 last year. Reflecting a higher proportion of social housing in second half of year
• Underlying operating margin in H1 weakened to 17.6% from 18.7%

AiY(D)

[AsleepInYorkshire]

Trading Update 13 June 2023

• Sustained improvement in reservations since Truss/Kwarteng budget
• Weekly reservation rate 190 with cancellation rates of 15% (Y/E '22 - 12%)
• Private reservation rate 139 week (Y/E '22 - 198)
• Headline pricing remains robust across regions. Some targeted incentives in some areas
• 4,342 plots contracted since 1 August 2022 (Y/E '22 - 13,496 plots)
• Net cash anticipated for Y/E '23 £200m
• £44m of £100m share buyback completed
• Forward order book £1.7bn - 6,172 homes (Y/E '22 £2.4bn - 8,152 Homes)
• Y/E '23 completions in line with previous guidance 11,000 completions (Y/E '22 11,198)
• Average selling price £300K (Y/E '22 - £314K)

Land

• Land purchases remain highly selective.
• Current land bank offers cushion against immediate plot drought
• Purchase of 886 previously approved plots cancelled

Dividend
Annual dividend anticipated at 140p as last year.

Outlook
Given our reduced order book, lower prevailing reservation rates and the uncertain interest rate environment, we continue to expect a lower year-on-year volume output.

Beyond the near-term, the Board is confident that, given the strength of the Group's land bank and balance sheet, Bellway is very well-placed to deliver longer-term volume growth which will further support ongoing value creation for shareholders.

AiY(D)

[BullDog]

One of the better firms to consider in a sector that's heading for short to medium term problems? Thanks.