Trading updates from housebuilders Bellway (LON:BWY) and MJ Gleeson (LON:GLE) did little to dispel the gloom surrounding the sector. Bellway maintained its guidance but saw a fall in reservations and its forward order book while Gleeson lowered its FY outlook.
‘Uncertain’ outlook
Newcastle upon Tyne-based Bellway said it had performed ‘robustly’ year to date and confirmed its FY26 operating profit target. However, it noted the market had become ‘increasingly challenging with customer demand having moderated in recent weeks’.
Moreover, while it is on track for the year to end-July, the firm cautioned the outlook beyond that was ‘uncertain’. Geopolitical tensions and higher mortgage rates have caused a marked slowdown in customer demand.
This has fed through into private reservation rates, which have dropped 6% in the last four months. As a result, the forward order order book is lower by volume and by value than this time last year.
Complicating matters, there is renewed upward pressure on building material costs stemming from higher fuel and energy input costs. The firm also said it was seeing the introduction of surcharges by certain supply chain partners.
Major earnings miss
Sheffied-based MJ Gleeson said trading in its housebuilding business was in line with management expectations for the year to end-June. However, land sales are behind expectations meaning FY profit will be significantly below market estimates.
The firm has been engaged in the sale of a site which would account for approximately 50% of total forecast plots to be sold in FY26. While progress has been made, the sale is now unlikely to complete this month.
Many housebuilders have slowed their purchases of land this year given the tough demand outlook. This means two further smaller deals scheduled for this year have also been delayed until H1 2027.
Without these sales, FY26 adjusted pre-tax profit will be £7.5 million below forecasts. Given the consensus is £17.8 million, that implies a 40%-plus miss.
We won’t harp on but we’ve said for a while now this is not the time to own housebuilders. Weak consumer confidence, relatively high mortgage rates and lack of affordability are all putting buyers off new-builds.
The recent UK Construction PMI survey painted a gloomy picture, with activity contracting at the fastest rate in years. Adding to the pain, input prices are rising steeply and product availability is starting to become an issue.
Bulls of the builders will witter on about the value of their land banks and low price to book ratios. Frankly, there are plenty of stocks out there on cheap muliples and many have far better fundamentals than the housebuilders. Moreover, value by itself is not an investment strategy – it needs a catalyst, and right now there isn’t one.
Investors should also watch the building materials producers and builders merchants for profit warnings. The brickmakers have been under the cosh for a while, but even dependable firms like Genuit (LON:GEN) have cautioned recently.
Read the Bellway press release here:
https://www.bellwayplc.co.uk/investor-centre
