Barratt Developments shrugs off housing market slowdown to post bumper profits but rival housebuilder Berkeley Group warns the sector ‘lacks urgency’
- Annual sales at Barratt Developments increased by 4.8% to £4.87bn
- Boss of Barratt said the group was ‘supporting economic growth’
- Berkeley Group trading update adopts more cautious approach
Barratt Developments claimed it enjoyed an ‘outstanding’ year after swinging to a higher profit amid tougher times for the housing market.
The group saw its annual pre-tax profits rise 9.2 per cent to £835.5million, while sales grew by 4.8 per cent to £4.87billion.
David Thomas, Barratt’s chief executive, said: ‘As the UK’s largest housebuilder we are helping to address the country’s housing shortage – creating jobs and supporting economic growth whilst continuing to lead the industry in quality and customer service.’
Growth: Barratt Developments claims it enjoyed an ‘outstanding’ year after swinging to a profit
Barratt said the availability of attractive mortgage finance and the Government’s Help to Buy scheme continued to support ‘robust consumer demand’ across its business.
Completions rose by 1.1 per cent to 17,579, marking the highest number in a decade, while average selling prices on completion grew by 5 per cent to £288,900. Forward sales increased 11.1 per cent to £3billion.
Mr Thomas said: ‘The group starts the new financial year in a good position with a strong balance sheet, healthy forward sales and robust consumer demand supported by a positive mortgage environment.’
The company’s share price in early morning trading was up 0.34 per cent or 1.8p to 537.4p.
Investors saw their annual dividend rise 5 per cent to 43.8p per share.
Neil Wilson, chief market analyst at CMC Markets, said: ‘Barratt continues to trade at something of a discount to peers – around 8 times forward earnings – after shares have fallen by around 20% in the last year.
‘But with a healthy dividend there to be had, there is yet some upside potential, albeit there may be softness today as the figures were well flagged back in July.
‘You can look to risks to the investment thesis from various angles – not least a radical rethink of housing strategy – but past performance by successive governments over the last 40 years doesn’t indicate we’ll see any real shift that should worry investors unduly.
‘However, the risk of a Labour-led government overhauling the sector is a consideration and is reflected in the discount we see applied to the sector.’
But, Richard Hunter, head of markets at Interactive Investor, cautioned: ‘With interest rates now potentially set on an upward curve and the economic outlook increasingly uncertain as Brexit negotiations falter, the sector is in the firing line.
Sluggish: Berkeley Group said the UK’s housing market ‘lacks urgency’
‘In addition, rising construction costs and the possibility of any government withdrawal in its current quest to reduce the housing shortage in the UK cast long shadows. Any weakness in house prices is being seized upon and despite Barratts’ protestations, these factors are prevalent.’
Adopting a similarly cautious approach, Berkeley Group said in a trading update ahead of its annual general meeting today that although it is making billions in profit, the housing market ‘lacks urgency and London remains constrained by high transaction costs, restrictive income multiple limits on mortgage borrowing and prevailing economic uncertainty, accentuated by Brexit.’
Despite earlier warning of an annual dip in profits, today Berkeley backed previous guidance to deliver at least £3.4billion of pre-tax profits for the five years to 20 April 2021, with at least £1.6billion of profits over the two years to 30 April 2019.
In June, Berkeley said it sold 3,536 homes over its last financial year, down over 9 per cent from the 3,905 sold a year earlier. Average selling prices came in at around £715,000, against £675,000 a year earlier.
Looking at the London market as a whole, Berkeley noted that overall transaction volumes were 19 per cent lower than two years ago.
In the period from May to August, Berkeley said it acquired five new sites.
Berkeley’s share price is up 1.13 per cent or 39.5p to 3,549.5p.
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