Forward of a common election which may show a vital second for London-focused housebuilders, interim outcomes for Berkeley Group (BKG) led with the group’s impacts on “all stakeholders”. Look past the apprenticeship figures, admirable environmental commitments, and claims that Berkeley constructed greater than a tenth of the capital’s “new non-public and reasonably priced houses” within the six months to October, and earnings have been nicely down.
Whereas drastic, the 36 per cent drop in working revenue was anticipated, and mirrored the well-flagged decline in home gross sales and the completion of a number of main tasks. At a mean £644,000 per house, these 1,389 gross sales have been additionally 13 per cent cheaper in contrast with the prior interval, although a shift within the gross sales combine and flat overheads meant the gross margin lifted from 29.2 to 36.1 per cent.
As Berkeley likes to remind us, longer-term worth is created by navigating all levels of the cycle. On that rating, this was a strong half-year. Two new giant regeneration websites added three,000 houses within the interval, whereas money due on ahead gross sales and the estimated future margin on the land financial institution each edged up. Returns have additionally been smoothed, as canny administration of the share buyback programme allowed each web money to climb above £1bn and NAV per share to rise 5.2 per cent.
That has left the interim dividend on the reducing room ground, although administration is sticking by a goal to return £280m to shareholders through distributions and share repurchases annually. This needs to be supported by a “return of profitability to regular ranges”, although a pre-tax return on fairness of 18.Four per cent for the interval suggests Berkeley is forward of a number of friends.
Regardless of this return to earth, chief govt Rob Perrins was upbeat, hailing a “good begin” to the yr. Actually, he virtually portrayed the extended uncertainty round Brexit as a chance, noting that “fewer builders are ready or capable of settle for the excessive operational danger of bringing ahead new houses, with provide falling as a consequence”.
“Come again in per week” was the decision of Peel Hunt, which instructed that traders ought to look forward to the results of the election to offer clearer steering on stamp obligation and second house and abroad purchaser taxes.
Consensus forecasts are for earnings of 333p per share for the 12 months to April 2020, and 345p in FY2021.
|BERKELEY GROUP (BKG)|
|ORD PRICE:||Four,531p||MARKET VALUE:||£5.7bn|
|TOUCH:||Four,528-Four,535p||12-MONTH HIGH:||Four,728p||LOW: three,208p|
|DIVIDEND YIELD:||zero.three%||PE RATIO:||11|
|NET ASSET VALUE:||2,420p||NET CASH:||£1.06bn|
|Half-year to 31 Oct||Turnover (£bn)||Pre-tax revenue (£m)||Earnings per share (p)||Dividend per share (p)|
The 38 per cent rise in Berkeley’s share value in 2019 displays a punished valuation in the beginning of the yr, and glorious subsequent treasury administration. Continued investments and a big money buffer are sturdy points of interest, although we agree with Peel Hunt’s level on timing. Maintain.
Final IC View: Hold, 4,082p, 19 Sep 2019