Positive trading update leads Citi to upgrade Bellway to buy

Citi has upgraded Bellway from ‘neutral’ to ‘buy’ on the back on a positive trading update last week.

The FTSE 250 housebuilder said on Friday it expects total completions and average selling prices to rise in the full year as it reported an "excellent" start to the current financial year.

In a trading update for the 18-week period from 1 August to 6 December, it said the reservation rate increased 12% to 165 homes per week, up from 147 in the same period last year.

Housing completions for the year to the end of July 2016 are expected to rise around 10%, while the average selling price of completions in the current financial year is also expected to increase 10%.

Citi said the trading update pointed to solid underlying trends underpinning management’s guidance upgrade to deliver strong volume growth and margin expansion for the 2016 financial year.

“The government’s recent policy announcements in the autumn statement also support a more favorable longer-term outlook for the sector and we expect Bellway to be well positioned in this backdrop especially benefitting from the support to Help to Buy London and supply of brownfield land.”

The investment bank increased its estimates for 2017 to 2018 by 15% to 20%, and lifted profit before tax estimates to £440m and £480m for 2016 and 2017 respectively.

“We expect the group to continue to deliver good volume growth, strong margins, attractive double-digit growth in net assets over the next three years and payout higher dividends.”

Citi also increased its target price from 2,660p to 2,980p.

The market took the recommendation to heart, with shares in Bellway up 43p (1.61%) to 2,716p at 1147 GMT.