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Bellway's reservation rate slows, though margins improve

The reservation rate at Bellway has eased off a little in the last couple of months but the house builder said market conditions with respect to both sales and land buying continue to be favourable.

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House builder Bellway (LON:BWY) has seen a slight slow-down in reservations over the last couple of months.

Total reservations taken since 1 August have averaged 147 per week, which is higher than the average of 144 seen in the same period last year but down from the average of 148 the company was enjoying when it released its full-year results in mid-October.

Bellway noted that the reservations rate a year ago was particularly strong, following the introduction of the government's 'Help to Buy' initiative.

The house builder warned that bottlenecks still remain in the sub-contract supply chain, especially in the buoyant London market, but in general the UK housing market is in good enough shape for the company to be confident of improving margins this year.

It also advised that volume growth over the full financial year is likely to be first-half weighted.

"Plans are at an advanced stage to open a sixteenth division in the second half of this financial year and this should enable the group to continue its disciplined growth strategy," the company said.

"Market conditions with respect to both sales and land buying continue to be favourable and provided they remain unchanged, Bellway should be able to deliver significant earnings growth and ongoing improvements in return on capital in the year ahead," it added.

Broker Panmure Gordon is upgrading its full-year forecast assumptions given the better than expected margin guidance from the group.
The profit before tax forecast rumbles up to £323.6mln from £316.6mln.

"Despite the upgrade to our forecasts we still believe the drivers behind our assumptions are conservative. With risk remaining on the upside, we therefore maintain our Buy recommendation on the stock," the broker said.

Bellway shares were down 3% at 1,836p in mid-morning trading, well short of Panmure Gordon's 1,991p price target.

That price target is, give or take a penny, identical to Liberum Capital's valuation.

Liberum said the 20% margin guidance was one percentage point higher than the assumption used in its valuation model, which should offset some of the disappointment from the slowing sales rate.

"Sales per week up 2%, but from 5% more sites, so there is a dip in sales year-on-year against a tough comp, which is not unexpected," the broker said, reiterating its 'buy' recommendation.

Quick facts: Bellway PLC

Price: 3355 GBX

LSE:BWY
Market: LSE
Market Cap: £4.13 billion
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