Questor: solid finances, ideal trading conditions ahead and shares 30pc down make this a ‘buy’

Bellway, the housebuilder, has benefited greatly from government and central bank action over the past decade. Policies such as Help to Buy, which allows first-time buyers to purchase a home with only a 5pc deposit, and exceptionally low interest rates have combined to create good trading conditions for the business.

Now Questor believes that the firm could benefit from further measures. Notably, the Chancellor’s recently announced stamp duty holiday may encourage homebuyers to bring forward their plans in order to avoid up to £15,000 in tax.

The scheme means that around 90pc of homebuyers will not pay stamp duty and the average bill will fall by £4,500. The temporary nature of the scheme, which is due to end on March 31 2021, could stimulate a housing market that recorded only half as many transactions in May as in the same month last year.

An increase in buying activity may help to overturn the longest decline in house prices since the global financial crisis. They have fallen in each of the past four months, although they are still 2.5pc higher than they were a year ago.

House prices could be further helped by the Bank of England’s rock-bottom interest rates. It is making homes more affordable by reducing the proportion of disposable income spent by homeowners on mortgage payments. Rates may have to stay low for a long time to combat weak consumer confidence, which in April reached its lowest level since the financial crisis.

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Questor sees the housing market’s long-term, demand-supply dynamics as favourable. Over the next decade there are forecast to be an extra 160,000 households per year in England. In spite of longstanding government attempts to get more new homes built, the number of housing starts recorded last year was 151,000.

Bellway is in a strong position to benefit if that imbalance between supply and demand remains in place, or even worsens, over a sustained period. The firm, a member of the FTSE 250, has a solid balance sheet with net bank debt of only £157m.

Its diverse spread of locations across Britain reduces its reliance on any one region and it had a land bank of almost 70,000 plots in January.

The company has achieved a five‑star Home Builders Federation rating for the past three years. This reduces risk for the firm in an era when customer redress for poor building practices has hurt rivals and forced some, such as Persimmon, to rethink their business model at significant cost and effort.

Other risks to face the business may prove more difficult to address swiftly. For instance, the uncertainty surrounding Britain’s economic prospects outside the EU may weigh on sentiment towards businesses that rely on domestic consumers for the majority of their sales.

The company is also susceptible to changes in those supportive government and central bank policies, such as planned restrictions on the Help to Buy scheme from April 2021.

Similarly, rising unemployment and weak job prospects may reduce the pool of potential buyers. Alongside the ongoing threat of a second wave of Covid-19, this may hit the company’s financial prospects in the near term.

Bellway’s decision to postpone dividend payments and to avoid providing financial guidance until later in the year may have contributed to weak sentiment of late and its shares stand about 30pc lower than at the start of the year.

However, the financial strength of the business and its capacity to benefit from fiscal and monetary policy stimulus make it an attractive opportunity. The continued imbalance between supply and demand in Britain’s housing market is unlikely to improve even over the long run, which could provide ideal trading conditions for Bellway and boost its share price.

Questor says: buy

Ticker: BWY

Share price at close: £26.19

Read the latest Questor column on telegraph.co.uk every Sunday, Tuesday, Wednesday, Thursday and Friday from 6am.