James Gard: I last looked at stock of the week Bellway exactly a year ago. At that time there was talk of a housing crash, mortgage market chaos etc. As a journalist I don’t like repeating myself, but none of these fundamental factors have changed in a year – interest rates are at multi-decade highs, house prices continue to fall. So investing in housebuilder stocks is still a risky business. Annual results are by their nature a look in the rear-view mirror, but the future looking stats are concerning: sales at this point of the year are just over a billion pounds, from two bilion at this point last year.
The order book stands at around 4,000, from just over 7,000 a year ago. Housebuilding targets have also been lowered for this financial year, a trend seen across the industry. It’s clear that times are tough and will likely get tougher until interest rates start to come down, as well as the cost of building houses. So what explains the near 20% rise in the share price since we last featured Bellway as stock of the week? Markets tend to be future-focused, so perhaps investors are looking ahead to a potential pivot?
Inflation is falling, albeit very slowly, which should translate into lower borrowing costs at some point. Certainly our analysts are thinking a decade ahead, where an ageing population and growth in single person households will drive strong demand for housing stock. Could there also be a bullish signal from the recent Labour party conference? The party is promising to loosen planning restrictions and launch a home building spree, something that should be music to the ears of the housebuilders. In the plus column, Bellway also offers a yield of over 6% and kept its annual dividend changed at one pound forty. Morningstar analyst Grant Slade think the shares are undervalued at twenty pounds a share, saying they are worth thirty seven pounds fifty. Still, it looks like a long climb back up the hill from here for the housing market. For Morningstar, I’m James Gard.
