Bellway eyes 20% margins as housing market "favourable and sustainable"

Housebuilder Bellway said market conditions "remain favourable" and as a result of continued demand for new homes across the country in the last six months, with volumes and margins both.

The FTSE 250 group's forward sales position was up 24.5% year-on-year to £975m, having slowed from the breakneck speed of growth announced at the time of final results in October. Forward sales were up 36% the previous financial year.

But Bellway showed good progress in first-half volumes, prices and margins all ahead year-on-year.

Volume growth of 15.7% saw 3,754 housing completions in the period, with average selling prices of homes sold rising 3% to around £219,000 and the average private homes up 7% to around £240,000, driven by the strong market environment and greater investment in primary locations over recent years.

"Whilst the pricing environment remains favourable, the rate of house price growth has moderated, particularly in and around London, resulting in only modest but sustainable pricing improvements on certain sites," the company cautioned.

Operating margin is expected to approach 20% for the six months to 31 January, up from the 15.6% generated in 2014.

With the sales market "favourable" and "sustainable", Bellway has been extra busy in the land market, with spending an increased £355m in the period, up from £240m, to swell it net debt position to £93m.

The rise in the average of 139 house reservations per week, slightly ahead of the equivalent last year of 137, disguises a fall in private sales.

Management told analysts that trading so far in calendar-year 2015 has been robust and they are encouraged by early spring trading, according to broker Numis.

Given the visibility the strong order book affords over the future direction of average selling price trends, Numis has increased its 2016 estimates by just over 3%.

"In our view, the strong uplift in H1 2015 completions highlights Bellway's operational capabilities to deliver on its strong order book and with management describing current trading as favourable and the land market remaining attractive, we forecast the group has the potential to show material volume growth over the foreseeable future.

"We continue to see Bellway as one of our preferred picks in the sector and believe its valuation fails to fully account for the group's inherent conservatism and its potential to show top-quartile profit growth over the medium term."