Bellway at all-time high and set for more

Political uncertainty remains an ongoing talking point both among commentators and investors. Talk currently is that a deal between the Conservatives and the Democratic Unionist Party could slip into next week.

Still, for those requiring clarity before making investment decisions, there are plenty of areas of the market that it is argued are immune, and housebuilders are one of them.

An upbeat trading update from Bellway Wednesday reiterated that view, with the company noting that "all political parties recognise the need for increased housing output", so no matter which party (or parties) end up governing, there is likely to be a favourable backdrop for the sector.

Colin McLean, managing director of SVM Asset Management, agrees. He expects the housebuilder and building products sectors to benefit in the coming months due to cross-party agreement on the need to invest in new houses, despite differences in implementation.

Bellway upgraded forecasts, sending shares up 6% to a record high above £30. Fellow housebuilders rode the wave, with Countryside Properties and Redrow both up 3.2%, and Barratt Developments, Taylor Wimpey and Berkeley Group all up around 2.5%.

According to broker Deutsche Bank, it was Bellway's confidence in its build programme that drove an increase in completions guidance for the full year to 31 July 2017 - now tipped to exceed 2016’s 8,721 by over 10%.

Yesterday, Crest Nicholson warned of build-cost inflation ticking higher. But Deutsche believes Bellway is comfortable with this and it has seen operating margin guidance edge up to "in excess" of 22%.

Bellway said sales demand between 1 February and 4 June was strong, up the reservation rate up 13% year-on-year to 221 per week. It continued to invest in land, contracting 10,250 plots, up from 8,600 in 2016.

Meanwhile, its forward order book of homes due for completion beyond 31 July now stands at over £900 million.

"This, together with a strong balance sheet and substantial operational capacity for expansion, should ensure Bellway is well positioned to deliver further volume growth this year and beyond," said chief Ted Ayres.

"The successful implementation of our disciplined growth strategy is leading to ongoing enhancements in shareholder value."

UBS had predicted a positive reaction from the market to today's events, and the broker is certainly bullish about Bellway’s prospects, repeating its 3,235p target price - implying 7.5% upside.

Deutsche analyst Glynis Johnson sees more modest gains, with a target of 3,090p and a 'hold' recommendation. Bellway currently trades on 1.3 times 2018 price/net tangible asset value (P/NTAV), which is in line with the sector average.

She does admit that, for a company achieving mid-20s return on capital employed with conservative, reliable management, the shares are "inexpensive".

But she adds, "With outlet expansions the sole driver of earnings growth and its London exposure potentially [to] prove a drag on margins, we prefer the greater growth profile at cheaper valuations elsewhere in the sector."

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.