Bellway FY profits rise amid record revenues, but demand moderating

Housebuilder Bellway reported a jump in full-year profit on Tuesday amid record revenues and completions, but cautioned that demand was moderating.

In the year to 31 July, underlying pre-tax profit rose 22.5% to £650.4m, with revenue up 12% to a record £3.54bn and housing completions 10.5% higher at a record 11,198 homes - ahead of the group’s target. Bellway cited strong underlying demand, with a 6.9% increase in the overall reservation rate to 218 per week.

On a reported basis, however, pre-tax profit was down 36.5% in the year to £304.2m, as the net legacy building safety expense surged 568.3% to £346.2m.

Bellway said customer demand was supported by low unemployment, and welcomed the recent positive changes to stamp duty thresholds, which it said will help customers saving to buy a new home.

The company did also warn, however, that elevated demand since the start of the pandemic has moderated. In the nine weeks since 1 August, weekly reservations were 191 per week, down 12.4% from the same period a year earlier.

Chief executive Jason Honeyman said: "Bellway has delivered another strong performance. Our strengthened land bank and resilient balance sheet provide a platform for long-term growth and, importantly, during a period of economic uncertainty, they enable the group to take a more cautious approach to land investment in the year ahead.

"Our long-term model is our strength and is supported by an underlying demand for new homes. Bellway's growth will continue to be disciplined as we maintain a clear focus on the high standard of our product, margin, quality of profit and value creation."

Russ Mould, investment director at AJ Bell, said: "The annual profit announced by Bellway looks impressive but there’s a good chance it won’t enjoy such a prosperous 12 months for quite some time to come.

"For years housebuilders have enjoyed almost perfect conditions. Low mortgage costs ensured there were plenty of potential purchasers, government support helped to stimulate demand and there was an undersupplied market which helped prop up prices.

"In the short-term the pandemic put the property market into deep freeze but coming out the other side it saw significant pent-up demand, further supported by a temporary stamp duty cut and by people wanting to upgrade to a larger living space.

"This was a sugar rush which may now turn to a sugar crash as a surge in interest rates helps shift the calculus for the market. Bellway’s commentary on recent trading shows clear signs of a drop in demand, similar to that evident in a recent update from Barratt Developments."