City experts believe Bellway (BWY) has more potential to rise after rebounding from a downtrend. The optimism remains strong in the housebuilding sector after Bellway (LON: BWY) announced a record land purchasing spree just two weeks after the company’s £62 million dividends.
Bellway, an FTSE 250 index-listed company based in Taunton, Somerset, is looking to complete around 9,800 homes in the year ending July 31 this year, the latest encouraging news for the market in early 2021. Additionally, it saw an improvement in an operating margin of 200 basis points.
Bellway’s fortunes continued to improve, as their share price climbed an additional 3% to its highest level since March 2020. However, the company cautioned its robust sales forecast can be damaged by factors such as rising unemployment, the end of the stamp duty holiday, or changes to the Help to Buy scheme.
Buyers might find it challenging to raise deposits because of this.
The company, which reported a strong cash flow of £346 million, took advantage of attractive property market conditions by spending a total of £452.8 million on contracts to acquire 8,848 plots across 54 sites in this half-year, up from 7,005 plots a year earlier.
Bellway is expanding its geographic reach and will be able to reduce its reliance on Help to Buy with these acquisitions. Bellway has pledged also that dividends will be increased in the future in line with the improvement in earnings, which resumed dividends in December with a one-year award of 50 pence a share.
On 8 January, payment of £61.7 million was made to shareholders. This is half as much as what was paid in 2019, but analysts believe the payout will increase, and the forward yield at more than 3% in this low-interest-rate environment isn’t insignificant.
Numis Securities analyst Chris Millington reported today’s update is not indicative of current growth prospects, upgrade potential, or balance sheet strength, given a price/earnings multiple of 8.8 times. Furthermore, the dividend is 2.5 times covered.
Millington’s stated price target was 3,852p, and its 2021 profits forecast increased 15% to £472 million. Millington adds that if there are fewer lockdowns, then risks are to the upside rather than a downside.