Morning Note: Market news and an update from Bellway.
Market News
US equities continued their upward march last night – S&P 500 (+0.8%); Nasdaq (+0.9%). The Fed’s Christopher Waller called for greater caution on interest rate cuts after ‘disappointing’ data. Bonds gained – the 10-year Treasury currently yields 4.08%. Gold trades as $2,653 an ounce as central bankers made rare comments in favour of bigger gold stashes.
Brent Crude continued to slide to $74.30 a barrel after the Washington Post reported that Benjamin Netanyahu told the White House he’s willing to strike Iran’s military rather than oil or nuclear facilities. Demand concerns also persist after OPEC cuts its growth forecast for 2025.
In Asia this morning, Caixin reported China may raise $850bn in new debt over three years to spur growth. Equity market were mixed: Nikkei 225 (+0.8%); Hang Seng (-4.0%); Shanghai Composite (-2.5%). The FTSE 100 is currently little changed at 8,292, with pressure coming from weakness in oil and mining stocks.
UK wage growth excluding bonuses slowed to 4.9% in the three months through August, while the unemployment rate dipped to 4.0%. Sterling trades at $1.3060 and €1.1988.
The FT reports that Google has ordered six small modular nuclear reactors to provide low-carbon electricity for its data centres. The move follows last month’s announcement by Microsoft regarding the restart of a nuclear power plant at Three Mile Island.
Source: Bloomberg
Company News
Bellway has this morning released its results for the financial year ending 31 July 2024. Trading has improved and profitability came in slightly above market expectations. The outlook statement paints a rosier picture for the current financial year. In response, the shares have been marked up by 8% in early trading.
Bellway is one of the UK’s leading housebuilders with a widespread geographical presence, comprising operations across England, Scotland, and Wales. The company operates under three brands: Bellway Homes, Ashberry (used on larger sites), and Bellway London (targeting the more affordable outer boroughs).
During the year, while a lower starting forward order book drove a reduction in volume output, customer demand has benefitted from a moderation in mortgage interest rates and consumer price inflation which has helped to ease affordability constraints and supported an increase in reservations. Trading patterns were less volatile than the prior financial year when sharp changes in borrowing rates led to significant variations in customer demand.
Total housing completions were 30.1% lower than last year, at 7,654 homes, but slightly ahead of guidance to deliver around 7,500 homes. The average selling price fell by 0.8% to £307,909, mainly due to changes in geographic and product mix.
Housing revenue fell 30.1% to £2,380m, with the underlying operating margin down from 16% to 10%. The reduction is in line with guidance and reflects the effect of lower volume output, cost inflation and the use of targeted sales incentives, together with higher site-based overheads due to the slower sales market since the summer of 2022.
The private reservation rate was up 13.8% to an average of 124 per week, driven by stronger demand and an increase in outlet numbers from 238 to 245. The private reservation rate per outlet per week rose by 10.9% to 0.51, with the second half (0.58) ahead of the first half (0.43), reflecting the improving trading backdrop and a seasonal uplift through the spring. The improvement in customer confidence also led to a reduction in the cancellation rate.
Reflecting the improvement in trading and growth in outlet numbers, the forward order book increased from 4,411 homes to 5,144, with a value of £1,413m.
Underlying profit before tax fell by 57.5% to £226.1m. Following the decision not to bid for industry rival Crest Nicholson, the group has disclosed £5.4m of aborted transaction costs.
Underlying return on capital employed fell from 15.8% to 6.9% due to the decrease in both asset turn and the underlying operating margin. With a strong platform from which to increase volume output, the company expects an improvement in RoCE this year.
Investment in strategic land continued – during the year, the group contracted to purchase 4,621 owned and controlled plots across 27 sites with a total contract value of £344.8m. The group has been increasingly active in the shorter-term market, with Heads of Terms agreed on around 8,100 plots at 29 September 2024.
The company has a strong and well-capitalised balance sheet, with net debt of only £10.5m, and expects to end the current financial year maintaining a low level of gearing. In light of the reduced earnings, the dividend has been cut by 61% to 54p, with underlying cover around 2.5 times.
Since the start of the new financial year, customer demand has remained robust and has been supported by an overall reduction in mortgage rates over the summer. In the nine weeks since 1 August, and against a weak comparative, the private reservation rate increased by 48.5% to 147 per week. The forward order book at 29 September 2024 remained at a healthy level, 5,109 homes with a value of £1,427.9m. In FY2025, the company expects to open around 50 new sales outlets and maintain the average number at around 245. The target is to deliver completions of at least 8,500 homes (+11%), while the average selling price is expected to be a touch higher at £310,000. The underlying operating margin is expected to climb from 10% to 11%.
The company welcomes the new Government’s plans to reform the planning system, which in time is expected to unlock land supply and support an increase in new housing across the country. Against this improving backdrop and if market conditions remain stable, the group believes its operational strength and robust balance sheet, combined with the depth and quality of its land bank, provide an excellent platform for Bellway to deliver strong multi-year growth.
Source: Bloomberg