ii view: builder Berkeley looks forward under new 10-year plan

First-half results to 31 October

• Revenue up 7.3% to £1.28 billion
• Pre-tax profit down 7.7% to £275.1 million
• Net cash of £474 million, down from £532 million in late April
• Share buybacks of £23.3 million, down from £52 million in H1 last year
• Dividend of 207p per share, up from 59p per share in H1 last year

Guidance:

• Forward orders of £1.51 billion, down from £1.7 billion
• Continues to expect current full-year profit of £525 million, down from last year’s £557 million
• Continues to expect profit of at least £450 million for the next financial year.

Chief executive Rob Perrins said: “There is good underlying demand for our homes, but transaction volumes remain around a third lower than FY23. While we have seen a slight uptick in recent weeks, a meaningful recovery will require a sustained improvement in consumer confidence and stability in the wider macroeconomic environment.

“We therefore welcome the government's mission for growth and its brownfield-led housing agenda to resolve the issues in the planning system and deliver 1.5 million new homes over the next five years. Indeed, the strength and tone of the government's housing commitments have already galvanised the planning system.

“We are now working closely with all levels of government to ensure that this positive momentum quickly translates into economically viable planning consents to unlock greater investment and delivery on the ground, but this will take time.”

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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 South East, building 3,500 new private and affordable homes over its last financial year to late October 2024. 

Berkeley previously outlined plans to establish a Build to Rent (BTR) platform, with 4,000 of its builds over the next 10 years being kept by itself and rented to tenants.

For a round-up of these latest results announced on 6 December, please click here.

ii view:

Berkeley Group highlights itself as the only large UK homebuilder focused on the regeneration and reviving of disused and underused land by building mixed-use neighbourhoods within the UK’s most undersupplied markets. Berkeley’s new 10-year strategic plan aims to offer increased financial flexibility in allocating an expected £7 billion in free cash flow over the next 10 years between investment and shareholder returns. 

For investors, the new 10-year plan will potentially see shareholder returns lowered in favour of increased group investment in areas such as new land. Management expects profits for the current financial year to fall. Changes to building regulations and the establishment of a new industry regulator are sources of uncertainty, while the tough economic backdrop, including elevated borrowing costs, continues to overshadow forward sales. 

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To the upside, Berkeley has an enviable track record of navigating difficult market conditions. Increased investment may enhance group performance going forwards. The group’s BTR platform is being delivered under flexible terms with sales of the properties also possible, while an estimated price to net asset value of 1.1 times now sits more in line with rivals such as Persimmon (LSE:PSN) and Taylor Wimpey (LSE:TW.), suggesting improved comparative value on a historical basis.   

For now, tough market conditions and expected reduced near-term profits suggest caution. That said, eased planning regulations, increased investment opportunity, and an estimated future dividend yield of close to 6% are all potentially grounds for investors to stay patient. 

Positives: 

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

Negatives:

• Uncertain economic outlook
• Planning reforms have failed to materialise in the past

The average rating of stock market analysts:

Strong hold