Numis downgrades Bellway but lifts forecasts after strong update

Numis Securities has upped its forecasts for Bellway after a strong start to its fiscal year, but has downgraded its recommendation on the housebuilder from ‘buy’ to ‘add’ after the recent strong run in the shares.

The stock had gained nearly 18% in the past three months ahead of Friday’s statement and the broker now sees less upside.

Bellway said it has sold an average of 147 homes a week since the start of the financial year on 1 August, up from 144 the year before.

Numis said this was a “highly creditable performance given that comparisons are very strong and outlet positions are slightly down”.

Meanwhile, the company is now guiding to operating margins for the year ending July 2015 of around 20%, compared with 17.2% the year before. Volume growth is forecast to be “slightly in excess of 10%”, better than previous guidance of “around 10%”.

Bellway has also spent £233m on land compared with £121m the previous year.

“Overall, this is a strong update and shows that Bellway’s strong and early level of investment post downturn is feeding through to top-quartile returns,” Numis said.

“Looking forward, we expect profit growth to be increasingly driven by top-line progression for Bellway and the wider sector (rather than further margin growth), and therefore a credible volume strategy (which we feel Bellway has) should ensure that profit growth remains at the upper-end of the sector.”

Despite the ratings downgrade, the broker said it still believes that Bellway is “one of the most attractive housebuilders”.

Bellway’s shares were down 3.8% at 1,820.98p by 11:23