How is Bellway managing increasing housebuilding demand from homebuyers?

Summary

• Bellway Plc has reported a 30.7% decline in revenues during FY20.
• The order book has witnessed a surge of 18.7% for the period from 01 August 2020 to 29 November 2020.
• The number of housing completions dropped by 30.9% to 7,522 during FY20.
• The proposed final dividend of 50 pence per share will be paid on 08 January 2021.

Bellway Plc (LON:BWY) is the LSE listed housebuilding stock. Based on 1-year performance, shares of BWY have generated a return of about negative 20.69%. Shares of BWY were up by close to 3.90% from the last closing price (as on 14 December 2020, before the market close at 09:00 AM GMT).

Bellway Plc is the FTSE 250 listed Company, which is engaged in the construction and selling of homes as well as providing houses to several hosing associations.      The Company is operating through 19 trading divisions across England, Wales and the Scotland.

Housebuilding Industry Overview

The housebuilding industry is the key industry for delivering strong growth across any nation. The global construction industry has been under deep concern in recent months due to the elevated level of uncertainty during the COVID-19 crisis and associated government action to contain the continued spread of the virus. The industry is witnessing widespread disruption and temporary shutdowns of construction sites even in the nations where the housebuilding has been allowed to operate, and exempted from restrictions on general business activity. Globally, the construction industry is accounted for 3 to 10% of GDP considering its raw-side contribution, while it is accounted for 10% to 30% of GDP taking entire contribution into account.

Trading Update (for 17-week period from 01 August 2020 to 29 November 2020, as of 11 December 2020)

• The Company is managed to open all sales outlets during the above mentioned period, including the lockdown period throughout November 2020 by maintaining strict Covid guidelines and procedure. The Company is having a strong online space and telephone space.
• Low-Interest rates, increasing affordability, and stamp duty holiday are some of the market forces, which is driving the housing industry. In terms of trading, the Company has shown 6% growth to 210 reservations per week during the period from the equivalent period of the prior year. The cancellation rate remained at 14% during the period. However, the reservation rate falls down to 164 per week due to widespread lockdown measures accounted for 30% contraction from the equivalent period of the prior year.
• The order book has witnessed a surge of 18.7% to £1,766.7 million during the period ended on 29 November 2020, representing 6,186 homes.
• The Company seems to be positive regarding the volume and expecting it to rise by 25% for FY21, while it was 7,552 for FY20 reflecting an increasing level of housing demand.
• With regards to land acquisition, the Company has received contracts to acquire 4,163 plots across 24 sites with a contract value of £184.0 million during the period, while it was £184.8 million during the equivalent period of the last year. The total cash spends on land, including payment of land creditors, remained at £176.6 million during the above mentioned period.
• In terms of financial position, the Company is having a net cash balance of £242.9 million as of 29 November 2020. The Company has ample liquidity support with £495 million undrawn bank facilities to be expired on 31 December 2023.
• The proposed final dividend of 50 pence per share will be paid on 08 January 2021.

Financial Highlights (for FY20 ended on 31 July 2020 as on 20 October 2020)

(Source: Company result)

• The Company has reported a 30.7% decline in revenue from £3.21 billion for FY19 to £2.22 billion during FY20, showcasing the significant adverse impact of Covid-19 pandemic.
• The profit before tax was plunged by 64.3% to £236.3 million due to COVID-19 expense of £18.9 million in relation to extended site durations and enhanced health and safety requirements;
• The number of housing completions dropped by 30.9% to 7,522 during FY20, while it was 10,892 during FY19.
• With regards to its financial position, the Company has strengthened its balance sheet by having net cash balance of £1.4 million as of 31 July 2020, and land creditors stood at £343.6 million as of 31 July 2020.
• The Board has proposed to pay a 50% reduction dividend to 50 pence per share from the levels of dividend paid in 2019 of 100 pence per share.

Share Price Performance Analysis of Bellway Plc

(Source: Refinitiv, chart created by Kalkine group)

Shares of Bellway Plc were trading at GBX 2,824.00 and were up by close to 3.90% against the previous closing price as on 14 December 2020, (before the market close at 09:00 AM GMT). BWY’s 52-week High and Low were GBX 4,336.00 and GBX 1,735.50, respectively. Bellway Plc had a market capitalization of around £3.35 billion.

Business Outlook

The Company has a pretty fancy track record of delivering growth for consecutive ten years. The Company is anticipating volume growth of around 9,000 homes during FY21. In terms of dividend payments, the Company is the only housebuilding company to show the consistency of paying a dividend for 11 consecutive years. The Company has maintained its balance sheet with the appropriate capacity to make lucrative land acquisitions.

The Company will complete the sale of approximately 9,000 homes at an average selling price of £290,000 for the year ending 31 July 2021. The Board is expecting the number of homes sold during H1 FY21 will be similar to the equivalent period of the prior year. It was 5,321 for the six months period ended on 31 January 2020. The Company has made an agreement having an issuance of a sterling US Private Placement (‘USPP’) in the amount of £130 million, as part of its ordinary course of business financing arrangements.  The final closing and issuance of the associated notes will be completed on the meeting of certain conditions that are customary for the USPP market.  The Company is expecting its debt having expiry in seven and ten years, will be entirely drawn from 17 February 2021, with a weighted average coupon rate of 2.7%.