28 May 2023
By Maynard Paton
I have recorded another podcast with fellow investor and good friend Roland Head. This time we talked about Bellway, the FTSE 250 house builder that Roland bought for his model portfolio during October 2022. We discussed why Roland purchased the shares, the company’s financial history, the economics of house building and the outlook for house prices.
We cover:
- Roland’s October purchase of Bellway at £17 and buying at almost 40% below net asset value.
- Why Bellway’s resilient and conservative dividend record stood out among other house builders.
- Bellway’s Artisan collection, the homes available for sale and their selling prices.
- House-building cycles, Bellway’s 10-year dividend returns and annualised total returns of c10%.
- Bellway’s 40-year financial performance and selling 2-bed flats in Croydon for £26k during the early 1980s.
- Bellway benefitting from general house-price inflation, average home sizes and Bellway’s homes becoming relatively larger.
- A quick Bellway site visit, build quality and the customers’ expensive cars.
- Do house builders have moats? The advantages for larger builders.
- Cash, cash generation, dividend cover and the balance sheet.
- Remedial work obligations, payables and cash flow in a possible housing-market downturn.
- Net asset value, the land bank and the cost of land as a proportion of sale prices.
- How Bellway performed during 2007/08/09, and management’s financial modelling for another downturn.
- Bellway borrowing and repaying debt during 2008/09, and development land values during 2007.
- Management, the well-connected non-exec chairman and LTIP targets.
- The latest H1 results, the deteriorating order book and weaker H2 selling prices.
- FY 2024 forecasts showing a significant profit decline and a divided cut.
- The £100m buyback programme and capital-allocation dilemmas.
- Thoughts on the housing market, the mortgage market and the direction of house prices.
- The possible 5% income, the £23 share price versus £28 net asset value per share and valuation comparisons to 2008.
Extra links:
- Bellway Homes website.
- Bellway investor website.
- My Redrow article for SharePad.
- Roland Head’s dividend website.
Happy listening!
Maynard Paton
PS: The episode was recorded on 24 May 2023.
