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Armchair Trader Pick: Buy & Hold Portfolio

  • Bellway Homes (LSE:BWY)
  • Sector: Consumer Cyclicals (Homebuilding / Construction)
  • Market Cap: £4.27bn
  • Entry price: 3502
  • Target price: 4250
  • Stop loss: 20%

We are adding UK house builder Bellway Homes (LSE:BWY) to our medium term pick list as the UK housing market continues to build momentum. The share price still looks like it is in recovery mode, and has not yet reached pre-pandemic levels.

Bellway Homes told the market this month that business is nearing pre-pandemic levels with revenues up 41% in the year to the end of July. Demand for homes is booming across the UK and Bellway seems to be working as hard as it can to complete new homes. Some 10,000 new ones were built in the last financial year, the company said.

Momentum seems to be starting to pick up again around Bellway Homes shares: it had been struggling a little in February before it got a big sentiment lift to take it to over the 3600 level. There is another key price level above 4000. This should be achievable.

Investors will be looking to the strong order book and balance sheet as key planks behind the Bellway Homes growth story. It has also been a beneficiary from the UK’s stamp duty holiday, along with a government-backed mortgage scheme. This is more than just about the pandemic – there is huge pent up demand for housing in Britain, and a government that understands that many first time buyers need assistance in getting onto the property ladder.

“This summer saw property prices driven up by both the stamp duty holiday and the WFH phenomenon,” says Lewis Shaw, founder of Shaw Financial Services in Mansfield. “The data we have shows that, at the top end of the market, prices have softened a little but that the rest of the market is still very buoyant. The rest of the year is likely to be business as usual given the shortage of stock so anyone expecting to pick up a bargain or waiting for prices to crash is going to be sorely disappointed.”

Shares still looking quite cheap

The Bellway shares are still looking quite cheap, with a PE ratio of 9.4. The current dividend yield is 3.6%. The dividend yield range looks a bit sultry, but again, we wonder whether conventional analysis applies right now when the company was forced to suspend dividends?


We would anticipate some much better numbers starting to feed through from Bellway Homes once we see the benefits of some of the crazy house buying activity that has been going on recently in Britain.

Most analysts are looking at a price target of over 4000 for Bellway. Five brokers have the stock rated a strong buy, with another nine rating it a buy. Only four have it on hold and none recommend selling the stock.

Cash fund needed for post-Grenfell upgrades

Downside risks? Bellway is being forced to put aside cash to deal with legacy cladding issues on buildings that look like they won’t now meet post-Grenfell Tower safety requirements. Bellway Homes has put aside over £130m for this but is anticipating more cash will need to go into this particular pot. Dividend payments have been re-started, which will be good news for yield-based investors.

The other big unknown would be a resurgence in the pandemic in the UK over the winter, which might impact investor and consumer confidence over the medium term, and undermine the house price picture.

Related

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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