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On Thursday, Deutsche Bank increased the stock price target for Bellway Plc (LON:BWY:LN) to £33.62 from £30.13, while reaffirming its Buy rating on the stock. The adjustment reflects the bank's confidence in the UK housebuilder's potential for significant organic growth in the fiscal years 2025 and 2026.
Bellway is seen as well-positioned compared to its peers in the sector, largely because it did not pursue aggressive volume increases in fiscal year 2024. Instead, the company is expected to benefit from outlet growth and a robust sales rate, which could lead to approximately 60% year-over-year growth in private forward sale units. This growth is anticipated to surpass pre-Covid levels.
The analyst from Deutsche Bank highlighted that, in contrast, the broader sector is grappling with order books that remain below pre-pandemic levels and generally appears less adequately invested in land and work-in-progress (WIP) inventory compared to Bellway. This context suggests that Bellway's recovery trajectory may be more secure than that of its competitors.
The rationale behind the price target increase also includes a valuation roll-forward by one year and a reduction in the discount rate from 8% to 7%. The lowered discount rate is meant to mirror the bank's belief in the greater predictability of Bellway's performance. The new stock price target represents an 11% uplift from the previous target, underscoring the bank's continued endorsement of the Buy rating for Bellway shares.
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