ii view: backing Berkeley Group to catch up

Its been a tough Covid marred year, but will overseas buyers return? We assess prospects. 

Full-year results to 30 April

• Revenue up 14.7% to £2.2 billion
• Pre-tax profit up 2.9% to £518 million
• Net cash flat at £1.1 billion
• Total shareholder returns (dividends & buybacks) up 19% to £334 million

ii round-up:

Housebuilder Berkeley Group (LSE:BKG) was established in 1976. Today its brands include Berkeley Homes, St Edward, St George, St James, St Joseph and St William. It operates principally in London, Birmingham and the South of England.

For a round-up of these latest results, please click here.

ii view:

Berkeley's sales are divided broadly evenly between owner-occupiers and investor, with many such investors coming from overseas. As such, the pandemic has hit Berkeley Group in a way not seen at other housebuilders. Ongoing international travel restrictions have hindered overseas buyers and investors from visiting and viewing its properties. The value of its private sales reservations over this latest financial year fell by a fifth compared to the previous financial year.   

However, enquiry levels in London for Berkeley have most recently been at a level ahead of pre-pandemic levels. Management also points to what it believes are strong fundamentals for its markets in the Capital and the South East. Management highlights that London's housing need is now 94,000 per year, against which an average of only 37,000 have been delivered over the last three years.

For investors, pandemic uncertainties and considerations for its overseas buyers cannot yet be totally dismissed. The previous loss of its founder and guiding light, Tony Pidgley, who regularly called the ups and downs of the property market, should also not be forgotten. But Berkeley continues to underline its long-term view. Its land holdings have capacity to deliver over 63,000 homes. Offsite factory manufacturing is being developed to speed construction and overcome recruitment challenges. Shareholder returns also remain a core focus, with analysts currently estimating a future dividend yield of over 5%. In all, and while some caution remains sensible, increasing hope of a return to travel may now encourage long-term investors to again begin accumulating holdings.      

Positives: 

• An industry revered track record
• A commitment to shareholder returns

Negatives:

• Both Covid-19 and Brexit offer ongoing uncertainty
• Reservations down by 20%

The average rating of stock market analysts:

Strong hold