Bellway stays bullish as profits build but margins come under pressure

● Housebuilder will increasingly look outside London for growth opportunities

Bellway, the housebuilder with a string of developments in Scotland, is to focus less on London as it increasingly turns to more attractive opportunities elsewhere in the UK.

The group, which constructed a record 10,892 new homes in its most recent financial year, marking an increase of 5.7 per cent, said it has gradually cut back on investment in London and expects the proportion of its homes sold in the UK capital to reduce in the foreseeable future.

Releasing “solid” financial results for the year to the end of July, Bellway said profit before tax had risen 3.4 per cent to £662.6 million.

Revenues grew 8.6 per cent to just over £3.2 billion, while a proposed total dividend per share of 150.4p represents a 5.2 per cent hike on the year before. The company’s operating margin – the amount of profit it makes per pound of revenue after some costs – slipped to 21 per cent from 22.1 per cent. It follows rival housebuilder Taylor Wimpey, which in July said that its margins were cooling.

Robin Hardy, an analyst at Shore Capital, noted: “There is a warning on margins here. The statement also refers to modest volume growth (we believe only circa 300 more units this year) and it is likely that the average selling price will fall even in a flat market as the mix and location of sales shifts away from London and the Home Counties. We like that Bellway is still prepared to push for growth even though it knows that margins are falling and, unlike others, it is not aiming to pare back the quality and specification of its homes in order to attempt to shore up its returns.

“We believe that this raises the quality of earnings as does the decision in the year to open a ‘partnerships’ division in London offering more mixed tenure developments.

“However, we are more clearly now at the end of the cycle and profits are rebasing lower which is inconsistent with shares hitting 12 months highs and coming close to all-time highs, in our view.” Bellway built 1,010 homes in London, down from 1,118 in its last financial year.

The group’s shares have recently hit their highest point since January last year. However, the company warned in its latest results that it is “mindful” that Brexit uncertainty could threaten consumer confidence.

This could lead to fewer homes being sold and reduce earnings per share.

Its Europe-based suppliers have started stockpiling to ensure they can meet demand in case of delays at ports, the company added.