ii view: Barratt Developments builds on strong foundations

Net cash of over £1 billion and a dividend yield of around 4%. Buy, sell or hold?

Full-year results to 30 June 2021

• Revenue up 41% to £4.81 billion
• Pre-tax profit up 65% to £812 million
• Final dividend of 21.9p per share
• Total ordinary dividend for the year of 29.4p per share
• Net cash up 327% to £1.3 billion 

Chief executive David Thomas said:

"We have made excellent progress this year thanks to the resilience, flexibility and hard work of our employees, sub-contractors and suppliers, who have also continued to deliver the highest standards of quality and service. 

“We have begun the new financial year in a strong position and, whilst there are still uncertainties ahead, our strong balance sheet, forward order book visibility and construction activity to date all stand us in good stead.”

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 these latest results, please click here.

ii view:

Barratt is one of the UK’s largest housebuilders by volume. Management is currently working towards a medium-term target of growing build completions to 20,000 homes a year. That’s up from 17,243 in this latest year, significantly above its pandemic hit 12,604 in 2020 and compares to a pre-pandemic 17,856 builds in 2019. 

For investors, rising build cost inflation, as reported at rivals such as Berkeley Group (LSE:BKG), needs to be considered. So do changes now required to meet environmental goals and its plans to become net carbon neutral by 2030. Possible tax or national insurance rises required to rebalance the government’s books following significant pandemic required spending, could also have some dampening impact on buyers’ finances.  

But demand for new housing remains generally robust, cost material inflation is being countered by rising selling prices, and the government has repeatedly shown its appetite to support the housebuilding industry if and when times get tough. For now, and with net cash up and the shares sat on a historic and estimated future dividend yield of around 4%, there's plenty here to keep investors interested.

Positives: 

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

Negatives:

• Uncertain economic outlook
• Rising raw material cost inflation

The average rating of stock market analysts:

Strong buy