Bellway PLC (LON: BWY) 

Bellway PLC is an FTSE 250 index listed Company, which is engaged in the construction and selling of homes as well as providing houses to several housing associations. BWY is operating through 19 trading divisions across England, Wales, and Scotland.

Recent trend of dividend payments

The Company had a medium-term target of distributing one-third of the after-tax profit to shareholders in the form of dividend payments over the next two years. Moreover, BWY will pay a final dividend of 82.5 pence per share on 12 January 2022, with an ex-dividend date of 02 December 2021, an increase of around 65% from the prior-year levels. Overall, the total FY21 dividend remained approximately 135% higher than the dividend paid during FY20.

(Source: LSE; Charts created by Kalkine Group)

Growth Prospects

• Accelerated Progress in Land Market: The Company had made accelerated progress as the number of plots increased from 12,124 plots in FY20 to 19,819 plots for FY21. Thus, it remained on track for volume growth and margin recovery for the medium term.
• Robust FY22 Trading: The Company had a substantial forward order book of £1.97 billion as of 3 October 2021. Meanwhile, BWY had expected earnings to be weighted towards the second half of FY22.
• Strong Operational Progress: BWY had shown a strong growth of 34.8% in the housing completions and achieved 10,138 completions during FY21, while it had managed to complete just 7,522 homes in the prior year.

Key Risks

• Covid-19 Pandemic: The new variant of the Covid-19 pandemic, Omicron, had caused a significant decline in the UK Equities.
• Supply Chain Disruption: The recent shortage of lorry drivers in the UK had created supply chain disruptions and escalated the freight cost.
• UK GDP: The UK economy witnessed a slowdown as the GDP grew quarter-on-quarter by around 1.3% during Q3 FY21, which remained merely lower-than-expected growth of around 1.50%.
• Rise in Interest Rates: New Zealand came up with a second interest rate hike in the last two months. Moreover, rising inflation worldwide had put pressure on several Central Banks as they struggled to curb it.
• Weak Industry Trends: According to the leading industry expert, the UK house price witnessed a monthly drop of around 0.6% during November 2021.
  

Now, we will analyse the Key Fundamental Statistics & Shareholding Pattern of Bellway PLC.

Dimensional Fund Advisors, L.P. is the most significant shareholder as it holds nearly 6.15 million shares as of 30 September 2021. 

FY21 Financial & Operational Highlights (for 52 weeks ended 31 July 2021, as of 19 October 2021)

 (Source: Company result)

• Strong Top-Line Business: The Group’s revenue grew by around 40.3%, from £2.22 billion during FY20 to £3.12 billion for FY21. However, the FY20 revenues were adversely impacted by the halt in deliveries for most of the final quarter to comply with Covid-19 restrictions.
• Robust Increase in Profitability: The underlying profit before taxation of BWY rose by approximately 71.6% to £530.8 million during FY21.
• Record Balance Sheet: BWY had strengthened its balance sheet and closed FY21 with net cash of £330.3 million, while it was £1.4 million at the end of FY20.
  

Financial Ratios (FY21)

Share Price Performance Analysis

On 29 November 2021, at 08:27 AM GMT, BWY’s shares were trading at GBX 3,172.00, up by around 0.99% from the previous day closing price. Stock 52-week High and Low were 3,756.00 and GBX 2,651.00, respectively.

From a technical perspective, the stock price is hovering between the lower Bollinger band and the middle Bollinger band, indicating an upside potential in the stock price. Moreover, the 14-days RSI stood at ~44.68 levels.

Over the last one year, BWY’s stock price has delivered a positive return of ~12.61%, and it has outperformed the FTSE All-Share Household Goods & Home Construction index (benchmark sector) with a return of around 1.23%.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook

The Company had replicated strong business performance shown during FY21 in FY22 as well as it grew order book by approximately 5% since then. BWY expected to increase output by around 10% to over 11,100 new homes during FY22. Moreover, the Company seemed well-equipped to significantly increase volume output ranging from 16,000 to 18,000 homes per annum over the medium term. On the profitability front, the Company expects underlying operating margin ranging from 18% to 19%, benefited by higher margin land acquisitions and the programme of commercial, cost saving and value engineering initiatives. However, the stock price may undergo sizeable corrections amid multiple risk factors such as the new Covid-19 variant, Omicron, and rising inflation worldwide. Thus, it is advisable for the clients to invest in this housebuilding company based on their risk appetite.

Considering the decent top-line business growth, a record increase in net cash during FY21, robust profitability, solid growth in dividend payments, and support from the valuation as done using the above method, we have given a “BUY” recommendation on Bellway PLC at the current market price of GBX 3,172.00 (as on 29 November 2021 at 08:27 AM GMT), with lower-double digit upside potential based on 9.86x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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