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One FTSE 250 stock I want to take a closer look at is Bellway Homes (LSE: BWY). It released a trading update yesterday and I feel it could be an overlooked opportunity due to mixed results.
Residential house builder
Bellway is one of the UK’s leading housebuilders. With roots stretching back over 75 years, a lot of the firm’s developments are situated on brownfield land. This is land earmarked by the government for urban renewal.
Let’s start by taking a look at Bellway’s share price. As I write, the shares are trading for 2,190p. At this time last year, they were trading for 2,394p, which is a 8% drop over a 12-month period. Interestingly, the FTSE 250 index as a whole is also down just over 9% over a 12-month period.
Results and opportunities
Bellway released a trading update for the year ending 31 July 2023 yesterday. Many analysts expected a downturn, primarily due to the current economic uncertainty, but Bellway shares didn’t plummet as some expected.
Bellway said that revenue is expected to come in around £3.4bn, a slight decrease from last year but in line with guidance provided previously. In addition to this, build completions and average selling prices also dipped slightly. Furthermore, operating margins fell mainly due to higher building costs. It also said that reservation rates fell by close to 30%.
It’s easy to identify the root cause of many of Bellway’s issues. The cost-of-living crisis, higher mortgage rates and soaring inflation have adversely impacted many FTSE 250 stocks, including house builders.
It would be easy for me to review Bellway’s recent results and avoid the shares. However, there were some signs of life elsewhere that could tempt me into buying the shares. To start with, it has a cash-rich balance sheet with £232m in the coffers. In addition to this, it has streamlined its workforce, which will no doubt lessen expenses during a tough time economically. Furthermore, it has plenty of land to fall back on for future projects as well as a healthy order book of close to 4,500 homes, which is pleasing to see despite the current macroeconomic picture.
A FTSE 250 stock I would buy
Despite Bellway’s update, which could be seen as negative in the main, it was expected. I’m more interested in its future prospects, which I think look bright. Demand for housing is outstripping supply, which in the long term could translate into future earnings and investor returns. Bellway has cash in the bank to deal with the current stormy waters too.
Speaking of returns, Bellway shares possess a dividend yield of over 6% right now. This is substantially higher than the FTSE 250 average. I am aware that dividends are never guaranteed. Furthermore, the shares look good value for money on a price-to-earnings ratio of 12.
To conclude, macroeconomic factors have and may continue to impact Bellway shares, at least in the short term. I invest for the long term. With that in mind, I believe Bellway shares are a great opportunity right now. I’d happily buy some shares when I have the spare cash to do so.
