ii view: Berkeley Group aided by London exposure

Shares in this major housebuilder are down by around a fifth year-to-date and offer an estimated future dividend yield of over 6%. Buy, sell, or hold?

Trading update for first four months to 31 August

• The value of underlying sales ahead of its last financial year
• On track to deliver full-year profit of £600 million

ii round-up:

Housebuilder Berkeley Group (The) (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 and the Southeast of England.

For a round-up of this latest trading update on 6 September, please click here.

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ii view:

Berkeley Group sells itself as the only large UK homebuilder focused on the regeneration of large, complex brownfield projects at scale, transforming disused land into mixed-use neighbourhoods within the UK's most undersupplied markets. It is the largest contributor to new homes in London. 

Its Vision 2030 strategy includes research using some of its buildings to identify the most carbon intensive materials and processes, and to developing plans to meet its target to reduce embodied carbon in its buildings by 40% come 2030.

For investors, a cocktail of headwinds are faced by the industry. These include rising interest rates, a cost-of-living crisis and ongoing supply chain challenges. Costs for the building industry broadly are rising, while stretched UK government finances might mean less assistance for the sector in future.

• Five things to expect from Kwasi Kwarteng's emergency mini-budget
• Stockwatch: is this the UK’s best-placed housebuilder?
• ii view: high yielder Persimmon battling economic headwinds

On the upside, customer demand is summarised as ‘good’ with the value of transactions above that of the same time last year. Like rivals such as Persimmon (LSE:PSN) and Taylor Wimpey (LSE:TW.), cost inflation is being countered by higher selling prices, while hopes now persist that that the new Prime Minister will look to implement a reduction in stamp duty to support customer demand.

While there are plenty of problems to face in the short-term, and the period could be rocky, Berkeley Group shares trade on a future price earnings/ratio (PE) below the 10-year average a forecast dividend yield of over 6%. Patient investors will want to keep an eye on this one.

Positives: 

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

Negatives:

• Rising build costs
• Uncertain economic outlook

The average rating of stock market analysts:

Buy