Bellway has suffered some profit taking after a positive trading update, after a surge in housebuilding shares over the last few months.
Bellway said the spring selling season had started strongly and this was continuing, with the general election having no noticeable impact on customer sentiment. The Help to Buy programme continues to help support the market, and its order book was up 22% year on year at the end of May.
It warned that labour constraints across the industry remained a concern but still expected 850 more completions this year than in 2014. It has sold its interest in 2376 shared equity loans for £32.5m in cash, realising a £6.9m profit, the last of its stake in these assets.
But its shares are down 41p at £23.27, and Robin Hardy at Shore Capital said:
[A] generally positive trading update with mostly inline guidance for the fully year: as this is the third quarter there is limited scope to sell more than indicated by the year end so this is good indication of the actual outrun for the year to July 2015. The only guidance that deviates from anything prior is on unit sales where the indicated unit completions are 7,700 against our expected 7,610. Prices and margins are as expected. Therefore, we are likely to make a small housekeeping change to current year forecasts of around 1% or £3m. Full year pretax profit therefore, is now likely to be around £336m (£246m). Our forecast has been fractionally ahead of consensus.
We have two concerns for the house builders at present: potentially run-away pricing with consequential policy/intervention risk and equity valuations. Mortgage demand has surged significantly in the latest data and this is before any post-election pick-up. The Bank of England reported a near 10% month-on-month rise and if that sets a new and stronger trend we see a risk that prices run away and policy changes and external intervention may be required. This is despite the two most recent lender house price surveys still pointing a slowing momentum.
On valuations, the sector has surged 19% since the election while in reality not that much has changed and a Labour victory was not likely to do that much harm to the market, especially outside London. Valuations are now generally ahead of even our revised fair value made on 8th May: our revised fair value for Bellway was an increase from 1960p to 2250p but the shares are now more than 100p above this level. We will now have to put the recommendation (currently buy) under review. Nonetheless, the initial reaction to this update is likely to be positive.
Other housebuilders are also down, with Barratt Developments 16.5p lower at 588p and Taylor Wimpey has lost 4.9p to 183.6p.
