FTSE 250 housebuilder Bellway (LSE: BWY) has seen its share price move sideways over the past five years. And a full-year trading update Tuesday (12 August) only gave it a modest 2% morning boost — even though home completions and the average selling price both beat guidance.
Completions in the year grew 14.3% to 8,749 homes, with the average selling price rising 2.6% to £316,000. And this is over a year with interest rates still high.
If this is what we see now, how might things take off when mortgage costs come down further? That’s what excites me about the housebuilding business in general.
Show me the cash
There’s no denying the business has been through a few tough years. And Bellway’s underlying earnings per share dipped disappointingly last year to 135.2p, down 59%. We’ll have to wait for the full results report, due 14 October, for this year’s figure. But we do have one tantalising balance sheet update.
Bellway ended the 2024 financial year with £10.5m net debt. A year later, and that’s turned round into £42m net cash. And we’re well ahead of broker forecasts, which didn’t predict a net-cash year until 2026.
The company reports a “strong land bank and outlet opening programme,” which should help it towards a full-year 2026 target of around 9,200 home completions. That’s actually only a modest 5% rise. So is Bellway beaing cautious in the face of the uncertainty we still face?
To me, this hints at a positive thing to watch for when the construction industry is under pressure. It can provide an opportunity for companies like Bellway to firm up their land holdings in preparation for the next bull run. Next bull run, I say? Well, it might be a cyclical business. But in a market like housing, which has a chronic supply shortage, the odds are surely in favour. Aren’t they?
Not there yet
The housing business is not out of the woods yet. Global tariffs and trade wars are already helping push UK inflation again. It edged up to 3.6% year on year in June, well above the Bank of England’s long-term target of around 2%.
The next interest rate cut? I fear it might not be for some time. So maybe the share price weakness will continue for a while yet. The lacklustre market reaction to this update does seem to point that way.
The question for me is whether the current stock valuation is low enough to provide a safety margin against near-term uncertainty. We’re looking at a forecast price-to-earnings (P/E) ratio of 15. And it might turn out lower considering these completions and selling price beats.
If earnings grow as predicted, we could see a multiple of 10.5 by 2027. I’ll need to weigh it against my current housebuilder holdings, and how Bellway compares to other stocks on valuation terms. But that’s low enough to put Bellway firmly on my list of considerations for my next buy.
