Will Bellway plc Stay Ahead Of Taylor Wimpey plc, Persimmon plc, Berkeley Group Holdings PLC And Barratt Developments Plc After Trading Update?

Are shares in Bellway plc (LON:BWY) (LSE:BWY) likely to keep outperforming those of Taylor Wimpey plc (LON:TW) (LSE:TW.L), Persimmon plc (LON:PSN) (LSE:PSN.L), Berkeley Group Holdings PLC (LON:BKG) (LSE:BKG.L) and Barratt Developments Plc (LON:BDEV) (LSE:BDEV.L)?

Bellway plc
Bellway plc

In the last six months, Bellway plc’s (LON:BWY) (LSE:BWY.L) share price has increased over 20%. That’s more than the share prices of house building peers Taylor Wimpey plc (LON:TW) (LSE:TW.L), Persimmon plc (LON:PSN) (LSE:PSN.L), Berkeley Group Holdings PLC (LON:BKG) (LSE:BKG.L) and Barratt Developments Plc (LON:BDEV) (LSE:BDEV.L).

For example, Berkeley Group is up 7%, Taylor Wimpey has gained 12%, Barratt Developments is 15% higher and Persimmon’s shares have increased 14%.

The trading update from Bellway shows further growth in volume since the last investor release. The number of housing completions was 6.5% ahead of H1 for FY2016, while a substantial order book with a value of £1121 million comprising 4487 homes shows its future outlook is positive in my view.

The strong trading performance is expected to result in an operating margin of approximately 22%. Bellway also sees opportunity within the land market. It spent £380 million on land and land creditors in the period, with its land teams continuing to identify opportunities that meet or exceed the company’s minimum financial acquisition criteria of gross margin and ROCE. It acquired 6287 plots in the period versus 5445 plots in H1 FY2016.

In my view, the outlook for house builders such as Bellway is unclear in the short run. The government’s policy is set to change shortly and there are rumours it will place further restrictions and checks on planning permission and the affordability of homes. While I feel this could cause Bellway’s share price to decline in the near term, I think the supply deficit of houses will take a very long time to eradicate. Therefore, I’m optimistic about the long term prospects for the industry.

The update from Bellway shows me the company has a sound strategy. Its acquisition and investment in land should improve its outlook further down the line. Therefore, I think it will continue to perform well on a relative basis and has investment appeal.

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