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I last wrote about FTSE 250's Bellway (LSE: BWY) last year. Since then, a lot has happened in the national home building industry.
For example, the company reduced its dividend payments. However, that move did not stop the share price from increasing by a little more than 50%.
It appears that investors were expecting a recovery in the housing sector. But the stock moved before the 'facts' of the fundamentals appeared in the trading and financial record. This is often the case with cyclical companies.
Forward-looking stock market
It's what makes investing in cyclicals so difficult. But it proves the stock market and its participants tend to look forward rather than backward. To paraphrase a quote from billionaire investor Warren Buffett: as investors, we need to look at the front screen rather than the rear view mirror.
Last year, I reported on the company's full-year results covering the trading year to July 2023. I described the figures in the report as “bad” and the vision statement was uncertain. City analysts expect a decline in earnings earlier.
Today (15 October) Bellway released its full-year report for the trading year to July. Again, the numbers look grim with everything we want to see on the ground. That includes a promised reduction in earnings per share, which fell about 59% year over year.
The budget was reduced by just over 61%. Meanwhile, what was last year's balance sheet position of £232m has turned into a net debt of £10.5m.
That view in the rear view mirror is not attractive. But remember, the stock is up more than 50% while the year is in play.
Chief executive Jason Honeyman said Bellway had delivered “another solid performance” despite challenging working conditions.
A book of high order
The order book was low at the start of the trading year and housing completions were slowing. But the moderation in mortgage interest rates drove better customer demand and an increase in bookings in the second half, Honeyman said.
Those that improve trading conditions and a “strong” the store opening program resulted in an increase in the year-end order book. As a result, Honeyman thinks the business is well-positioned to deliver a “the increase of material things” in volume releases during the current trading year to July 2025.
So there is logic behind the stock price rise. It shows that successful investment can be by creating an idea and learning subtle clues from the director-said as much as it is about quantitative analysis – in other words, science, art and alchemy!
What's next for Bellway? However, Honeyman thinks the government's plans to reform the planning system could open up the land supply and support a surge in new housing. If conditions also remain stable, Honeyman thinks Bellway can deliver strong growth for many years to come.
The share price has changed today. But near 3,280p, the forward dividend yield is 1.9% or more. However, if trading improves as expected, profits may increase ahead.
Despite the positive outlook of the business, I cannot really buy at these levels and suspect that the benefits of the fast cycle may have been achieved. So I look away.
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