Margin warning at Bellway, and Hays helped by low expectations

“The FTSE 100 was being left behind by European counterparts on Tuesday as improved investor sentiment did battle with a rising pound,” says Russ Mould, AJ Bell Investment Director.

“Strength in sterling is often a negative factor for the UK’s flagship index as it undermines the relative value of constituents’ overseas earnings."


“Despite some volatility in the wake of the Brexit vote, the past few years may come to be seen as a golden age for the UK housebuilding sector.

“A combination of rising house prices, low interest rates, a competitive mortgage market and government subsidy in the form of the Help to Buy scheme led to bumper returns for the sector.

“Today’s results from Bellway demonstrate that this golden age could be drawing to a close. House price inflation is stalling and, combined with an increase in build costs, this is beginning to put margins under pressure.

“At Bellway this looks set to be exacerbated as sales of freeholds on flats, particularly in London, dry up, as the company is forced to offer more part-exchange deals to maintain volumes and as it shifts focus from London and Home Counties.

“These numbers also benefitted from a one-off boost from its Nine Elms development in West London.

“Bellway deserves credit for continuing on a growth path in the face of the pressured returns and for not compromising on build quality as a short-term fix to maintain margins.

“The company is also diversifying through its London Partnerships business, building homes in joint venture with local authorities, housing associations and investors in the private rental sector.”


“Expectations for today’s update from recruiter Hays would have been at rock bottom after rivals Robert Walters and PageGroup downgraded earnings guidance last week.

“That explains why the shares are rising strongly despite what looks like a fairly average trading update.

“Unsurprisingly, business in the UK and Ireland is under particular strain as businesses put hiring on hold while they await clarity on the Brexit situation.

“It is no surprise to see that here, net fee income, a key metric for recruitment firms, is retreating.

“It is Germany, the company’s largest market, which is likely to be causing more concern and investors may be taking the reporting of flat net fees for this part of the business as a win given the strain on the country’s automotive and manufacturing sectors.

“Hays has taken steps to diversify geographically in recent years and this delivered benefits, with 10 countries growing fees by 10% or more.

“And the company looks reasonably well-equipped to weather any downturn given its solid net cash position.”

These articles are for information purposes only and are not a personal recommendation or advice.

The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.