Canaccord raises price target on Bellway following strong NAV growth

Analysts at Canaccord Genuity raised their price target on British housebuilder Bellway to 3,590p from 3,450p on Wednesday, praising the group for delivering an improved full-year net asset value per share despite falling margins.

Canaccord pointed out that in 2019, Bellway had delivered another "strong increase" in its net asset value per share at 14%, even as margins fell and said the firm's balance sheet looked to be "in good shape" to continue to support growth in site numbers and volumes over the medium-term as net cash sat at over £200m.

"Clearly, there remain risks related to Brexit and macro trends (Services PMI below 50 and unemployment edged up recently in UK) but, assuming sales rates hold up, volume growth should come through as site numbers increase," said Canaccord.

However, the Canadian broker said Bellway's guidance on margins was "disappointing and unexpected", but noted that margins of around 19.5% remained good and, when combined with volume growth, said that they would continue to support double-digit net asset value per share growth.

Canaccord, which stood by its 'buy' rating on Bellway, expected 2020 to see lower profits as margins reset but, assuming the wider macro backdrop holds up, it said profit growth should return in 2021.

"We continue to see attractive value in the shares over the medium-term as the expected growth is delivered, but in the near-term they may remain under pressure until more visibility and confidence over the margin outlook and macro risks are forthcoming."