Bellway results are out – is it time to invest in the house builder?

Bellway (LSE: BWY) is the UK’s fourth biggest house builder and announced its preliminary results today. Overall, things are looking good. Its profit margins look set to hit 20% and revenues have risen by over 40% to £3.12bn. However, these impressive-looking numbers are skewed by a low base year. Revenues absolutely plunged to £2.23bn during the Covid-19 pandemic last year.

News on its dividend also looks positive. After cutting dividends to 50p in 2020, Bellway is now offering a proposed total dividend per share of 117.5p. This is still below its 2019 level of 1504p, but represents a whopping rise of 135%. Its preliminary results also announced a target to return one-third of after-tax profits to shareholders in dividend payments over the next two financial years. 

The share price is currently at around 3,400p, having fallen to under 2,000p as the impacts of the Covid-19 pandemic became clear in March last year. It is yet to reach its pre-pandemic high of around 4,300p, last seen in February 2020. 

Strategic cunning

These numbers look good, but its results reveal a strategic approach that I like even better. During the pandemic, it took a ‘front-footed’ approach to land acquisition, and bought up a record 20,000 sites in the year to 31 July 2021. Compare this to Vistry, which acquired around a quarter of the number of sites over the same period, and the boldness of this move becomes even more impressive. It is now sitting on a land-bank of almost 90,000 sites, leaving them well placed to respond to periods of high demand over the coming years.

It has also been strategic about positioning itself to offer better value homes. Bellway report that it is aiming to offer a more affordable mix of products in advance of the Help to Buy scheme expiring in March 2023. It is already reporting a slightly lower average selling price for the year ahead (£295,000 vs £306,479 last year) as a result.

A bumpy road ahead?

But could storm clouds lie on the horizon for the UK property market? The first problem on the cards is the higher steel and timber prices arising from a combination of shortages and soaring global demand as the economy reopens.

Then there is the issue of labour shortages due to self-isolation requirements. Preliminary results also flag the issue of heavy goods vehicle drivers and unreliable fuel supplies. These have combined to mean that material availability is under threat. Bellway believes that these are manageable through good procurement disciplines and forward planning, but accepts that construction output in early 2022 will be similar to 2021 levels.

Housing demand is also vulnerable to a stalling economic recovery. With higher interest rates potentially just around the corner, could higher monthly repayments leave consumers less willing to take on mortgage debt? Fears about ‘stagflation’ could also shake confidence and lead buyers to put off huge purchases. If so, housing demand could falter over the coming months. 

I am certainly impressed with Bellway’s strategic planning and the land bank it has built up. As I have written before, I think investing in house builders can be a neat way of gaining extra exposure to the property market without buying a place myself. But does this additional exposure still make sense? I’m on the fence!