Bellway beats expectations with bumper profits growth

Housebuilder Bellway's 44% rise in full year profits to £354.2m was well ahead of consensus forecasts, allowing it to reward shareholders with a bumper dividend increase.

Revenues at the Newcastle-headquartered group rose 18.9% to almost £1.77bn in the year to 31 July, with the profits beating forecast thanks to a 290-basis point expansion of gross margins and 320bps of operating margins.

The headline PBT benefits from an exceptional gain on the sale of a share equity portfolio of £6.9m, with core trading PBT of £347m only a slight beat of the £343m consensus.

Earnings per share increased by 47.5% to 231.5p and the proposed dividend by 48% to 77p per share.

Chief executive Ted Ayres said since the year end the FTSE 250 builder, which has expended its geographical footprint to now include both the South West and Kent, had continued to make use of the favourable market conditions to grow the order book 4.7% to 4,568 homes with a total value of £1.09bn.

"In the nine weeks since 1 August the Group has taken an average of 149 reservations per week, an increase of 16% compared to the same period last year, with greater availability of product for sale and positive market sentiment contributing to this strong performance."

As a result, the value of the order book at 4 October rose to £1.03bn from £975.4bn a year before.

He said, all being equal, this order book should give rise to the Bellway growing volumes by up to 10% in the current financial year and added that the board will consider making further investment in areas of high demand.

Shore Capital noted that Bellway's legacy bank of low-margin land is largely worked through and land vendors have begun to draw a line in the land on the gross margins they are happy for housebuilders to make.

"There is market inflation but this is still largely being offset by cost inflation. Volume targets could be exceeded, however: at the beginning of FY15 volume growth was guided to 7.5% and actually ran at above 13%. Factoring in the small beat for FY15 and fractionally higher baseline margins, we are likely to make a small housekeeping upgrade from PBT for FY16 from £387m to circa £392m."

While mostly focusing on the positive, Keith Bowman of Hargreaves Lansdown also pointed out that, on the downside, constraints regarding the availability of labour remain: "an increase in interest rates continues to lurk in the background, whilst a 60% plus increase in the share price over the last year raises some valuation concerns".

"For now, Bellway and the industry remain in a purple patch. The full weight of both government and central bank support continue to be given, with both the Help to Buy shared equity scheme extended to 2020 and prospects for an increase in interest rates being pushed back ever further."