ii view: Berkeley Group a likely beneficiary of new transport link

Shares for this housebuilder are down around a fifth year-to-date. Buy, sell, or hold?

Full-year results to 30 April

• Revenue up 6.6% to £2.45 billion
• Pre-tax profit up 6.4% to £551.5 million
• Shareholder returns up 54% to £515.1 million
• Group net cash of £269 million, down from £1.13 billion last year

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 Group frames itself as the only large UK homebuilder focused on the regeneration of large, complex brownfield projects at scale. It currently has 26 of its 32 long-term complex regeneration developments in production. Management believes that the acquisition of National Grid's (LSE:NG.) 50% interest in St William continued its philosophy of investing at the right time in the cycle for the long-term, securing unrivalled land holdings in London and the South East.

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For investors, inflation at a 40-year high, a cost-of-living crisis and expected further interest rate rises all make for a tough industry backdrop. Rising build costs and ongoing supply chain challenges also need to be remembered. A price-to-net asset value of around 1.3 times is also above some rivals such as Barratt Developments (LSE:BDEV), Bellway (LSE:BWY) and Redrow (LSE:RDW) at under one. 

More favourably, the previous acquisition of the remaining 50% stake in its St William joint venture adds to its landbank, lifting earnings estimates by around 5% over the next few years. Cost inflation is being countered by higher selling prices, while recent trading is summarised as ‘stable’, with the new Elizabeth London cross rail line likely assisting business.

On balance, and given both a bolstered land bank and a continued focus on shareholder returns, long-term investors with an eye on income are likely to stay patient with this major UK housebuilder.  

Positives: 

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

Negatives:

• Suffering rising build costs
• Uncertain economic outlook

The average rating of stock market analysts:

Buy