Yahoo Finance FTSE 250: UK homebuilder Bellway warns of slowing demand amid soaring mortgage rates
Homebuilder Bellway (BWY.L) has reported a record revenue but warned that demand is slowing, pressured by rising mortgage rates.
Bellway posted a 36.5% fall in pre-tax profits to £304.2m for the year to July 31 after taking a £346.2m hit on fire safety provisions in the wake of the Grenfell Tower tragedy. With this stripped out, underlying pre-tax profits rose 22.5% to £650.4m.
The Newcastle-based group said weekly house reservations have fallen 12.4% year-on-year to 191 in the nine weeks since August 1.
It said: “While Bellway entered the year with a strong forward order book, given the backdrop of rising interest rates and wider economic uncertainty the board currently expects to deliver volume at a similar level to the prior year.”
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Spiralling inflation in the UK has hiked costs across the board, but has hit the price of materials, labour and fuel particularly hard.
It is also expecting a fall in average selling prices to around £300,000 from £314,399 in 2021-22, but said this largely reflects a higher proportion of social housing sales.
The Newcastle-based company built a record 11,198 homes in the 2022 financial year, up 10.5% year on year.
The group said its order book remains strong at £2.09bn, up from £1.97bn a year ago.
Shares in Bellway fell on Tuesday morning.
“As with its peers, the share price has reflected the half-glass empty outlook for prospects as opposed to the robust earnings which are continuing on the ground. For Bellway, this translates to a share price decline of 46% over the last year, as compared to a drop of 24% for the wider FTSE250,” Richard Hunter, head of markets at Interactive Investor, said.
“However, the bulls remain undeterred given the group’s strategic flexibility for growth, longer term planning underpinned by a robust balance sheet and previous experience of difficult economic periods. Indeed, the market consensus of the shares as a strong buy is reflective of the support which the company retains from potential investors, even if the share price disconnect is likely to stay in place for the time being," he added.
The housebuilder, which mainly focuses on two-storey family homes, warned that the next 12 months will be tougher, with the UK economy likely to go into recession and interest rates heading higher.
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Chief executive Jason Honeyman said: “Output is, however, expected to be more moderate, given the uncertain economic backdrop. We have a strong order book, and our build programmes are weighted to a higher proportion of social completions and given this, the Board currently expects volume output to be similar to the prior year. The final outturn will be dependent on the autumn and spring selling seasons and the group will prioritise the high standard of our product, margin, quality of profit and value creation.
“The long-term fundamentals of our industry remain strong and there is a shortage of high quality, energy efficient and affordable homes across the country. If market conditions remain robust, Bellway has ambitions and significant capacity to deliver further sustainable volume growth, over several years, to in excess of 16,000 units. “
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