Investors have been worried about softer confidence among home buyers in the wake of the surprise UK election call in April, together with the ongoing uncertainties over Brexit Housebuilders constructed some good gains today after the first post-election trading update from the sector proved reassuring, with PLC () saying demand for its homes did not slow in the run-up to last week’s polling day. Investors have been worried about softer confidence among home buyers in the wake of the surprise UK election call in April, together with the ongoing uncertainties over Brexit, as recent house price surveys have shown declines. George Salmon, equity analyst at , said: “There is something of an arm-wrestle going on within the UK’s housing market at the moment. “Recent figures from both Nationwide and Halifax show prices falling, while political uncertainty has added to the concerns. “However, the housebuilders have released a relentless string of positive updates, and these numbers from are very encouraging too. Reservation rates are impressive, and its guidance for the future is upbeat to say the least.” He added: “Results like these add weight to the argument that, barring a sudden rise in interest rates, demand for new homes will remain buoyant. “After all, the fires of demand are being stoked by supportive government policies and a sharp supply-demand imbalance.” Highlighting this, Ted Ayres, ’s chief executive said: “Robust market conditions, together with a clear operational focus, is enabling to continue increasing its contribution to the supply of much needed new homes.” Although in its statement, the FTSE 250-listed group did also say that prime minister Theresa May's failure to win an outright majority in the election had caused "a degree of instability" and there was "wider uncertainty" as the Brexit negotiations with the European Union begin. However, investment director Russ Mould, noted: “While the () trading statement acknowledges the General Election result and the imminent negotiations with the European Union on Brexit, it does so a long way down the page – perhaps providing a tacit reminder to investors that profits and cash flow ultimately drive company share prices rather than political considerations and that the priced paid to access that cash flow will in turn dictate the return made from any shareholding.” 2017E 2017E Dividend cover Historic PE (x) Dividend yield (%) (x) Price/book (x) Barratt Develop. 10.0 x 6.9% 1.45 x 1.5 x 8.6 x 3.8% 3.02 x 1.8 x Berkeley Homes 7.4 x 6.1% 2.20 x 2.5 x Bovis 12.4 x 4.7% 1.73 x 1.2 x 12.3 x 2.4% 3.34 x 2.4 x 8.8 x 5.8% 1.96 x 2.0 x 11.1 x 5.3% 1.71 x 2.7 x Redrow 8.4 x 2.7% 4.47 x 2.0 x 10.0 x 7.2% 1.39 x 2.1 x AVERAGE 9.9 x 5.0% 2.36 x 2.0 x Mould added: “If the builders keep delivering strong earnings and cash flows their shares should respond, supporting the view of those investors who argue that Brexit fears are overdone, the overall impact on the UK economy will be minimal and that domestically-facing sectors such as house builders, construction and real estate could offer value, even as the UK’s headline indices trade at or near all-time highs.” Bellway was a top FTSE 250 gainer in late morning trading, with its shares up 4.4% at 2,976p, heading a rally by other housebuilders, with mid cap peer () gaining 2.7% at 562p, while blue chip PLC () added 2% at 2,439p. In a note to clients, Shore Capital analyst Robin Hardy said: “The house builders are typically prone to show knee-jerk reactions to positive news regardless of valuations and we would expect Bellway to mark a little higher this morning but overall we remain cautious on the sector on valuation grounds. “Bellway, which is still just a midcap, shows better relative value than the sector’s large caps and could be a target for intra-sector rotation out of large cap into midcap for those looking to hold a weighting in the sector but we see limited absolute upside and would even consider taking profits into any significant rally.”
The snap UK general election doesn't appear to have affected confidence in the housebuilding sector, with reassuring figures among the first post-election trading updates. Construction companies are expected to report a rise of just 0.1% on Thursday, while construction equipment and services firms will see their orders fall by 0.4%. Bellway's shares rose 4.4% to 2,976p, while Redrow gained 2.7% to reach 562p.