Morning Note: Market news and an update from housebuilder Bellway.

Market News

US equities enjoyed a strong rally last night – S&P 500 (+2.3%); Nasdaq (+2.9%) – on the back of signs of resilience in the labour market as jobless claims came in lower than expected. Tom Barkin said the Fed has time to assess whether the US economy is softening before acting more forcefully. Treasury yields moved up after a weak $25bn sale of 30-year notes.

In Asia this morning, a rally in Japanese shares lost momentum (Nikkei 225, +0.6%) after the yen (147 vs. the $) resumed its rise. Elsewhere, markets were mixed: Hang Seng (+1.3%); Shanghai Composite (-0.2%). China’s CPI accelerated more than expected to 0.5% in July, offering hope of a recovery in domestic demand. However, factory-gate prices fell 0.8%, extending a deflationary run that began in late 2022.

The FTSE 100 is currently trading 0.3% higher at 8,172. The board of Hargreaves Lansdown has agreed to a £5.4bn takeover by a private equity group led by CVC Capital Partners. The 1140p cash offer includes a final dividend of 30p. The share are currently trading 2% higher at 1,100p.

Sterling trades at $1.2768 and €1.1685. Gold moved up to $2,420 an ounce, while Bitcoin rose by 9.1% and past $60,000. The oil price firmed to $79 a barrel.

Source: Bloomberg

Company News

Bellway has this morning released an update for the financial year ended 31 July 2024. Trading has improved, with completions and pricing coming in slightly above guidance. A return to growth is expected in the current financial year. In response, the shares have been marked up by 2% 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 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% lower than last year, at 7,654 homes, but slightly ahead of guidance to deliver around 7,500 homes. The average selling price fell from £310k to £308k, mainly due to changes in geographic and product mix, but was also slightly ahead of the £305k guidance.

Housing revenue is expected to have fallen from £3.40bn to £2.35bn, with underlying operating margin of around 10%, vs 16.0% last year. The reduction is in line with guidance and, in part, reflects the effect of lower volume output.  In addition, there has been a decrease in site profitability, in line with expectations, arising from cost inflation, the use of sales incentives, and the costs of operating outlets for extended durations.  

The private reservation rate was 13.8% higher than the prior year at an average of 124 per week, with the improvement driven by stronger demand and an increase in outlet numbers from 238 to 245. The private reservation rate per outlet per week of 0.51, up 10.9%. In the second half of the group’s financial year, the rate increased to 0.58 compared to 0.43 in the first half, 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 to a normalised level of 14%, down from 18% last year.

Reflecting the improvement in trading and growth in outlet numbers, the forward order book has increased from 4,411 homes to 5,144, with a value of £1,413m.

Investment in strategic land continued, with increased activity in the shorter-term market. The group has contracted to purchase 4,621 owned and controlled plots since 1 August 2023 across 27 sites with a total contract value of £345m.

The company has a strong and well-capitalised balance sheet, with net debt of only £10m, in line with expectations. The company continues to expect underlying dividend cover will be around 2.5 times for the full financial year.

The group highlights that it is encouraged by the new Government’s plans to increase the supply of new homes across the country and welcome its plans to reform the planning system. The Bank of England’s cut to base rate earlier this month together with the current low levels of consumer price inflation provide a further underpin for improving customer confidence. If market conditions remain stable, Bellway believes its strengthened forward order book, healthy outlet opening programme, and work-in-progress position provide an excellent platform to return to growth in financial year 2025.

Source: Bloomberg