Bellway Earnings: Shares Remain Compelling Despite Near-Term Housing Cycle Woes in Fiscal 2024

Bellway’s BWY full-year fiscal 2023 result provided us with little surprise with the delivery of 10,945 home completions and GBP 533 million in adjusted profit before tax, aligning with our fiscal 2023 financial estimates. Bellway also weighed in on the near-term outlook, confirming what we’d already expected—that fiscal 2024 will be a tough year for the no-moat homebuilder amid presently glum housing U.K. market conditions. We expect to lower our fiscal 2024 estimates based on build cost inflation and corporate overhead guidance provided by Bellway that exceeds our current forecasts. Still, with our long-term expectations unchanged, we do not expect any impact on our GBX 3,750 fair value estimate.

Certainly, the confluence of the recent surge in mortgage interest rates and build cost inflation—which is yet to fully cool from its elevated level in fiscal 2023—will weigh significantly on home completion volumes and profit margins in fiscal 2024. Still, we think investors remain too narrowly focused on the cyclical housing downturn and are overlooking the robust long-term fundamentals for Bellway and the U.K.’s other major homebuilders. On this basis, we continue to view Bellway as significantly undervalued, trading at a considerable 41% discount to our fair value estimate.

While cyclical challenges exist in fiscal 2024, we think the decade ahead is likely to be a rewarding one for all the major U.K. homebuilders under our coverage, including Bellway. We expect an ageing U.K. population to support long-term demand for new housing and forecast at midcycle 250,000 gross additions to the U.K.’s housing stock annually, around 9% greater than the average over the prior housing cycle of 2013-22. Our expectations for robust housing demand in the long term sit in stark contrast with the current negative expectations of investors that are factored into Bellway’s presently depressed stock price.