Bellway says margin and volume to be squeezed

Bellway has said it expects build volumes and margins to fall in the year ahead despite a modest recovery in demand for homes since the collapse in the market in the aftermath of last September’s mini-Budget.

The Newcastle-based listed housebuilder, which today reported pre-tax profit down 0.6% for the six months to January 31, repeated earlier forecasts that it now expects to build 11,000 homes for the full financial year to July, down slightly on 2022.

It said that the lower level of completions, combined with build cost inflation and “the continued use of targeted sales incentives”, will lead to “a further modest reduction in the underlying operating margin” beyond that achieved in the first half.

It also added that weaker demand, which it blamed on higher mortgage rates and the expiry of Help to Buy, meant that it now it expect to build fewer homes in the next financial year. Its results statement said: “Given the expected robust near-term completion profile and the current run rate of reservations, we now expect a year-on-year reduction in both the order book by 31 July 2023 and volume output in the next financial year.”

Bellway built 11,198 homes in the 2022 financial year.

This prognosis comes despite the fact Bellway said trading had recovered in the first few months of 2023 from the lows seen in the last quarter of 2022, when private reservations were as much as 60% down on the prior year, and cancellations spiked at 25% of orders. It said that the weekly private reservation rate had risen to 135 sales since Feb 6, albeit still 44% down on the 239 seen in the same period last year.

It said the overall reservation rate, including affordable housing sales, was now just 34% down on the previous year, at 291 sales per week, while the cancellation rate had returned to the “mid-teens”.

The firm said: “The private reservation rate increased week-on-week throughout January, supported by a seasonal pick-up and some easing of mortgage rates. […] Since then, customer interest has remained healthy and reservation rates have seen a further uplift, providing an encouraging start to the spring selling season.”

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Bellway reported turnover for the period of £1.81bn, up 1.6%, producing a pre-tax profit of £306m, down 0.6%. However, its pre-tax number was flattered by comparison to the previous year’s figure, which included a larger building safety charge of nearly £20m, compared to £6.2m in this period. Hence, Bellway said its underlying pre-tax profit was actually down more sharply, at 4.6%, to £312m, compared to £327m in 2022.

The firm also announced a £100m share buy back scheme, and said that despite the expected reduction in housing volume next year, it was “confident that the strength of our land bank and balance sheet can support the delivery of further organic volume growth” in the longer term.

It said: “The long-term housing market fundamentals remain positive, and Bellway will continue to play an important role in meeting the need for new homes in the years ahead.”

Chief executive Jason Honeyman said: “Bellway has delivered another strong performance, notwithstanding the challenging operating and trading conditions in the period. We have been encouraged by the moderate, yet sustained improvement in reservations since the start of January 2023, and the Group remains on track to deliver volume output of around 11,000 homes in the full financial year.

“Bellway’s experienced team has a proven ability to adapt to an evolving economic backdrop. The Group has a robust balance sheet with strong cash resources and, combined with our strategic land holdings, Bellway has an excellent foundation to deliver long-term returns for shareholders.”