James Gard: Welcome to Morningstar. Making its stock of the week debut today is housebuilder Bellway, which has just released annual results.
Now housebuilder updates have become rather predictable in the last few years. Profits up, sales up, prices up. And on the surface Bellway’s market update looks familiar. But its figures only run up to the end of July, and we’ve had chaos in the mortgage market since and the usual dire warnings about a housing market crash.
Looking at more recent figures, the company said that potential buyers are now more cautious and it has already seen a softening in reservations in the last nine weeks. Analysts have trimmed full-year profit forecasts for the current financial year.
Still, Bellway is optimistic that the recent cut to stamp duty – one of the few surviving parts of the ill-fated mini Budget – could cushion any fall in demand. Plus, while interest rates are rising, unemployment remains low.
Could housebuilder shares be pricing in the worst-case scenario for the housing market? Bellway shares are down 46% this year to £17.80, but Morningstar analysts think they have a fair value of £36.70.
From an income investor’s point of view, the dividend has been hiked by 19% and the stock yields around 8% at current share price levels.
Our analyst Grant Slade says that Bellway is remains our top pick of the U.K. homebuilders we cover despite the concerns over a housing market slowdown.
For Morningstar, I’m James Gard.
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