UK Property

Tuesday, 12th June 2018 09:44 - by Rajan Dhall

This morning we see updates from two UK property heavy weights Bellway and Crest Nicholson. Both have had pretty contrasting fortunes in terms of recent price action. Bellway has performed very well moving 21% since May 2017 while Crest has lost 31% in the same period. 

This morning Bellway produces a strong statement here are some of the key statements: 

• Market conditions remain favourable, with the Group achieving a 5.4% increase in the reservation rate in the period to 233 per week (2017 – 221 per week).
• The forward sales position is excellent, with the value of the order book 7.8% ahead at £1,703 million (4 June 2017 – £1,580 million).
• For the full year, Bellway is on target to complete the sale of in excess of 10,000 homes for the first time in its history and in doing so, achieve another record year of earnings.
• Demand is most pronounced for affordably priced family homes countrywide, with divisions operating in locations as dispersed as Scotland, Essex and the Midlands all continuing to show strong performance. 

In terms of outlook and forward guidance the company states they expect completions for the year ending 31 July 2018 to exceed those achieved last year by around 600 units.  This forecast volume growth, together with the previously reported rise in the average selling price, which is expected to be in excess of £280,000 and an anticipated operating margin of around 22% (31 July 2017 – 22.3%), should result in Bellway achieving another year of substantial earnings growth.

The Crest Nicholson statement was also positive overall:

• Revenues from open market housing sales up 16%; strong PRS (Private Rented Sector) growth offsetting lower land sale and affordable housing revenues.
• Open market average selling prices (excluding PRS) up 5% at £439k (2017: £418k).
• Sales per outlet week (excluding PRS & a bulk sale) averaged 0.72 (2017: 0.81), reflecting the change in product and location mix.
• Outlet numbers increased, averaging 52 in the first half of 2018, up 6% (2017: 49).
• Forward sales at mid-June 2018 of £568.2m (2017: £540.4m), 5% ahead of prior year. Forward sales for the full year 2018 including year to date completions at mid-June 2018 were 12% ahead of the same period last year (2017: 6% ahead).
• This comment however the market may not find too appealing ' Our experience of generally flat pricing against a back-drop of continuing build cost inflation has, however, had an adverse impact on our margins and we have taken a number of actions to seek to offset build cost pressures and invest in areas of greater housing affordability.'

On the chart you can see a clear divergence between the two share prices and it seems in recent times they have both ticked up. The main reason for the fall in Crest Nicholson was the comment from the company about margins (included again today), there has also been some difficult times with shareholders disagreements. I still think Bellway still has the potential to outperform Crest especially due to the comment about flat costs and margins.

The Writer's views are their own, not a representation of London South East's. No advice is inferred or given. If you require financial advice, please seek an Independent Financial Adviser.