ii view: Barratt Developments builds on strong demand

Shares for this FTSE 100 housebuilder are down by more than a third during 2022 and now offer a forecast yield of around 8%. Buy, sell, or hold? 

Four-month trading update from 1 January to 1 May

• Forward sales up 18% year-over-year to £4.38 billion
• Net private reservations per average week up 12% to 0.93
• Net cash held of £735 million

Chief executive David Thomas said:

"We are seeing strong demand across the country for our high quality, energy efficient homes and our excellent operational teams are working hard to meet this demand. We expect to deliver full year trading results in line with the Board's expectations.”

ii round-up:

Housebuilder Barratt Developments (LSE:BDEV) builds nationally, employing over 6,000 people. 

Approximately two-thirds of its builds are three or four bed houses. Its brands are Barratt Homes, David Wilson and Barratt London. Its commercial business Wilson Bowden focuses on retail, leisure, office, industrial and mixed-use schemes.

For a round-up of this latest update, please click here.

ii view:

FTSE 100 constituent Barratt Developments was founded in 1958. Today it builds both private and affordable housing and over its last full financial year to the end of June 2021 delivered 17,243 new homes. Barratt is currently working towards a medium-term target of growing build completions to 20,000 homes a year.

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For investors, inflation driven higher by war in Ukraine and higher interest rates cannot be ignored. Rising build costs, funds to meet renewed cladding following the Grenfell fire and the pending withdrawal of the ‘Help to Buy’ scheme, also warrant consideration. So does the possible future impact on demand of tight government finances in the wake of the pandemic and the possibility of future tax rises.

That said, demand for new housing currently remains robust. Cost material inflation is being countered by rising selling prices. Renewed cladding cost fees are being addressed, while the UK government has repeatedly shown its appetite to support the housebuilding industry when times have got tough. On balance, and with trading for now remaining robust, and the shares sat on an estimated future dividend yield in the region of 8%, income focused investors may wish to stick with Barratt.  

Positives: 

• Offers regional UK geographical diversity
• Attractive dividend yield (not guaranteed)

Negatives:

• Uncertain economic outlook
• Rising build costs

The average rating of stock market analysts:

Buy