Bellway sells record number of homes in the first half and Travis Perkins readies Wickes demerger

“A dulling of recovery hopes as Europe tackles a third wave of coronavirus are a bit of a double-edged sword for the market as they also seem to have cooled the inflation fears which have had investors in a tizz,” says AJ Bell Investment Director Russ Mould.

“Indeed, the rate of UK CPI actually came in well below expectations for February. Oil prices also fell overnight as Asian shares took a step back.

“What markets would really like is a Goldilocks situation where the recovery is neither too hot to avoid causing prices to rise uncontrollably, nor so cold that it prompts another downturn.

“However, this is incredibly difficult for central banks to engineer when they don’t know exactly how this latest phase of the pandemic will play out. For now the emphasis seems to be to risk doing too much rather than doing too little to support the economy.

“Rolls-Royce, buffeted by turbulence over the extension of travel restrictions affecting its aviation sector clients, faced further share price pain on Wednesday after yesterday’s revelation that the Norwegian government is standing in the way of a sale of its maritime engine business to a Russian company.

“Just as the situation with the wider economy it looks like the company’s recovery could be increasingly complicated.”

Bellway

“The return of a first-half dividend at Bellway is the latest example of how rapidly the housing sector has rebounded from the pandemic.

“Put in deep freeze a little under a year ago as the first set of coronavirus restrictions were imposed, the Government has done the equivalent of slapping the housing market in the microwave to defrost it rather than leaving it to one side to slowly thaw out.

“Measures like the stamp duty holiday, a new mortgage guarantee scheme and the continuing influence of Help to Buy, coupled with pent-up demand and a lockdown-induced realisation for many people that they wanted more space in different surroundings has helped super-charge demand.

“This explains how Bellway completed the sale of a record number of homes in the six months to 31 January 2021, though a modest drop in pre-tax profit demonstrates how extra Covid-related costs ate into its significantly higher revenue.

“Bellway has continued to take advantage of depressed valuations on land by buying up plots for development. This investment should pay off down the line.

“Fairly bullish expectations for the rest of the year are underpinned by a strong forward order book and a robust balance sheet.”

Travis Perkins / Wickes

“The UK stock market is about to get another retailer and for once it isn’t an online clothing seller. Travis Perkins is making progress with demerging Wickes, with the intention of listing its shares in London soon.

“DIY companies have been milking the benefits of people being stuck at home during multiple lockdowns, with more attention being paid to cracks in the wall, broken doors, wobbly gates and so on.

“The problem with Wickes is that a good chunk of its business also comes from the ‘do it for me’ channel, and that’s not done so well during the pandemic. Restrictions on showroom openings have meant that Wickes couldn’t show off its wares and thus sales have been hit.

“While DIY sales have continued to be good, it’s suffered the same fate as supermarkets in having to incur extra costs to keep staff and customers safe. Delivery costs have also been a drag, which suggests profit margins are being squeezed.

“Wickes is eager to talk up its situation, saying it expects to deliver sales growth ahead of its markets this year, but its overall success has a lot riding on the consumer spending big once lockdown restrictions are lifted.

“It is banking on pent-up demand to translate into sales of new kitchens and bathrooms. That’s not a given, and so Wickes could start life as a standalone listed business in a position where management risk disappointing investors if the hoped-for sales burst falls flat.”

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