Questor share tip: Bellway dividend up 78pc

Bellway
£16.37+30p
Questor says BUY

HOUSEBUILDER Bellway announced record revenues and earnings per share in its interim results yesterday, sending its shares more than 2pc higher.

However, the shares still look attractive as the UK housing market gathers steam, fuelled by cheap loans and low interest rates.

The FTSE 250-listed housebuilder said it had experienced “strong” consumer demand during the first six months ended January. The company added that the reservations rate had accelerated in the early spring selling season, traditionally the strongest time of the year for housebuilders.

The forward order book increased rapidly, up 64pc to £829.5m by March 9 from £507.4m a year earlier.

Revenue increased by 40pc to £701m, gross profit jumped 55pc to £138.6m and pre-tax profits soared by 73pc to £103.8m. Investors were rewarded with a 78pc increase in the interim dividend to 16p, ex-dividend May 28 and payable July 1.

The board said they expect to maintain dividend cover of three times earnings. So, with Bellway on target to achieve revenue of £1.39bn, pre-tax profits of £211m and earnings per share of 134p for the full year ended July, that leaves the way open for a 45p total dividend, or a yield of 2.7pc.

“We invested significantly in land over the past few years and as a result of that we’ve been able to react to the strength in the market,” said finance director Keith Adey.

The company spent £240m, increasing the value of land holdings to £1.03bn. The land bank increased to 34,057 plots for new homes, up from 32,991 a year earlier. Bellway has plenty of opportunity to continue revenue and profit growth.

Bellway sold 3,245 homes in the six months ended January, up 25pc on a year earlier. Mr Adey said he expects to sell about 3,500 homes in the second half, a growth rate of 20pc over the full year.

A 13.1pc rise in average selling prices helped the company’s operating margin rise to 15.6pc, which was ahead of analysts’ forecasts, leading to upgrades for full-year forecasts.

There are only four months left of the current year’s trading and Bellway is well on target for full-year results. The shares, trading on 11.9 times earnings, falling to 9.7 times next year, are marginally cheaper than fellow housebuilders but not by much.

Questor first recommended buying the shares last year (£14.30, December 14) and they have risen 15pc since then. We picked them as one of our tips of the year due to the assistance it is getting from Help to Buy and the recommendation remains. Buy.