ii view: Berkeley Group establishes build-to-rent business

Full-year results to 30 April

• Revenue down 3.4% to £2.46 billion
• Pre-tax profit down 7.8% to £557 million
• Group net cash held up 30% to £532 million
• Total shareholder returns of £283 million, up from £254 million the year before

Guidance:

• Forward order book of £1.7 billion, down from £2.1 billion a year ago
• Now expects pre-tax profit for the year ahead of £525 million, up from a previous £500 million

Chief executive Rob Perrins said:

"In the year, we have delivered 3,500 new private and affordable homes, of which 87% are on regenerated brownfield land, and provided over £370 million in subsidies to deliver affordable housing and commitments to wider community and infrastructure benefits."

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ii round-up:

Housebuilder Berkeley Group Holdings (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, Birmingham and the Southeast, building more than 19,600 homes over the last five years.

For a round-up of these latest results announced on 19 June, please click here.

ii view:

Berkeley Group promotes itself as the only large UK homebuilder focused on the regeneration and reviving of disused and underused land to build mixed-use neighbourhoods within the UK's most undersupplied markets. A constituent of the FTSE 100 index, it is the largest contributor to new homes in London. Industry competitors include Taylor Wimpey (LSE:TW.), Barratt Developments (LSE:BDEV) and Persimmon (LSE:PSN). 

Berkeley announced plans to establish a “Build to Rent” platform, with 4,000 of its builds over the next 10 years being kept by itself and rented to tenants. Berkeley highlights that only 3% of the UK's private sector rental sector is owned by institutions, versus 40% in the US and 37% in Germany.

For investors, the tough economic backdrop, including still heightened borrowing costs, continues to overshadow, with forward sales down by almost a quarter year-over-year. The move to build and rent will tie up capital which could potentially be used elsewhere such as for buying land. A review of the industry by the Competition and Markets Authority remains ongoing, while an estimated price-to-net asset value of 1.4 times compares to rivals such as Bellway (LSE:BWY) and Barratts at under one, suggesting potentially better value elsewhere. 

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More favourably, Berkeley has an enviable track record of navigating difficult market conditions. The Build to Rent platform is being established under flexible terms, with sales of the properties also a possibility. Build cost inflation has eased, with selling prices remaining firm, while a strong existing land bank may also help it better direct cash back to shareholders as it awaits a broader industry recovery rather than buying new land.

In all, and despite ongoing risks, new diversity via its rental platform and a forecast dividend yield of around 5% are likely to keep investors interested in this major housebuilder. 

Positives: 

• An industry revered track record
• Enjoys interest from overseas customers

Negatives:

• Uncertain economic outlook
• Challenging planning environment

The average rating of stock market analysts:

Hold