At a share price near 2,636p, housebuilder Bellway (LSE: BWY) is around 40% below its February peak. In that sense, it’s a cheap UK share. Although the price has bounced back a bit from its low in March when the coronavirus crisis first hit the stock market.
Why Bellway became a cheap UK share
Of course, the market was anticipating the negative effect the pandemic would likely have on the underlying business. And today’s full-year results report sets out the extent of the short-term hit to operations. The figures are horrendous. For example, revenue dropped by almost 31% compared to the prior year and earnings per share crashed by just over 64%.
The cost of stalled business and extra costs because of lockdowns was expensive for the company. The net cash position plunged from just over £201m the year before to just £1.4m. No wonder the stock market marked down the share price. But the good news is that operations are now back on track and the directors have reinstated shareholder dividends by declaring a full-year payment worth 50p per share.
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All of Bellway’s employees have now returned to work. Some are working from offices, some on building sites and some from home. The company kept paying all its staff full basic wages through the pandemic without calling on the government’s Coronavirus Job Retention Scheme. I reckon that speaks volumes for the underlying strength of the business.
The poor figures in today’s report are historic and the investment opportunity now is all about looking ahead. And there’s been a “strong” start to the new trading and financial year. Overall reservations are up by almost 31% to 239 per week in the nine weeks since 1 August. And there was a “record” forward order book on 4 October worth almost £1,870m.
A positive outlook
The directors reckon those factors combine with a “strong” work-in-progress position to provide a “solid platform for recovery in the year ahead.” Indeed, despite the ongoing pandemic, productivity levels are running between 85% and 90% of those achieved in the prior year. The directors say Bellway has the “strategy and platform in place” to deliver long-term and sustainable growth.
Even now, it has a robust balance sheet with a net cash position. Borrowings are modest at close to just £50m. That figure compares well with the pre-tax profit of almost £237m earned during the year. Meanwhile, the forward-looking earnings multiple for 2021 is just over 10, which I see as undemanding. City analysts expect a robust bounce-back in earnings next year of around 25%.
I think the sector has good underlying fundamentals. There’s an ongoing demand for housing, which is being fuelled further by the current ultra-low-interest-rate environment. Indeed, mortgages remain cheap and available. So I’d consider investing in Bellway right now, along with its peers such as Persimmon, Taylor Wimpey, Vistry and others.
