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.

The Company will release H1 FY22 results on 29 March 2022.

Recent Trend of Dividend Payments

The Company has 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 had paid 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

• Strong Industry Dynamics: According to the mortgage lender Halifax, the UK house price demonstrated an annual jump of around 10.8% in February 2022, the fastest annual growth rate since June 2007.
• Accelerated Progress in Land Market: The Company had made accelerated progress as the contract value increased from £452.8 million at the end of H1 FY21 to £567.8 million for H1 FY22. Thus, it remained on track for volume growth and margin recovery for the medium term.
• Robust Order Book: The Company’s order book comprised of 6,628 homes valued at £1.94 billion at the end of H1 FY22, a significant increase from the order book of 5,889 homes as of H1 FY21.

Key Risks

• Record UK Inflation: The annual rate of UK consumer price inflation reached 5.5% in January 2022, the highest since March 1992. Thus, it can adversely impact the London equities.
• Other Operational Risk: Delays or deficiencies in construction could increase costs, reduce sales volumes and selling prices.
• Ukraine Tension: The mounting concern over the Russian invasion in Ukraine can continue to weigh on the equity market.
  

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 31 December 2021.     

H1 FY22 Trading Update (for the six months ended 31 January 2022, as on 08 February 2022)

• Average Selling Price: The average selling price rose by around 2.8% from £303,206 in H1 FY21 to £311,800 for H1 FY22.
• Strong Underlying Demand: BWY had boosted the demand levels with an approximate 5.8% increase in the overall reservation rate to 202 per week.

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

 (Source: Company Filings)

• 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 

(Source: Refinitiv; Analysis done by Kalkine Group)

On 07 March 2022, at 08:40 AM GMT, BWY’s shares were trading at GBX 2,523.00, down by around 5.86% from the previous day closing price. Stock 52-week High and Low were GBX 3,756.00 and GBX 2,509.00, respectively.

From a technical standpoint, the stock price is hovering around the lower Bollinger band, indicating a bullish price momentum. Meanwhile, the 14-days RSI of ~30.39 approaches an oversold territory.

Valuation Methodology: Price/Earnings Approach (FY22E) 

Business Outlook

The Company had replicated strong business performance shown during FY21 in FY22 as well as it forecasted a volume growth of around 10% in FY22 when compared with the end of FY21. Moreover, the Company seemed well-equipped to report volume annual output of around 12,200 homes in FY23. On the profitability front, the Company expects FY22 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. In a nutshell, the Company remained on track to generate long term returns for the shareholders with a substantial order book, strengthened land bank, and significant balance sheet.

Markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Considering the strong order intake during H1 FY22, strong growth in dividend payments during FY21, robust profitability, 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 2,523.00 (as of 07 March 2022 at 08:40 AM GMT), with lower-double digit upside potential based on 7.42x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Note 1: The reference BWY in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios. 

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

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