ii view: builder Berkeley's promising planning reforms

Second-half trading update to 28 February

• Maintained profit guidance of £525 million for the current year to 30 April and £450 million for the next fiscal year
• Expects net cash of £300 million on 30 April, down from net cash of £474 million as of 31 October
• A total of £156.1 million yet to return to shareholders via share buybacks or dividends by 30 September

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 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 this latest update provided on 14 March, 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 to build mixed-use neighbourhoods within the UK's most undersupplied markets. Competitors include Barratt Redrow (LSE:BTRW), Taylor Wimpey (LSE:TW.) and Persimmon (LSE:PSN).

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Berkeley’s new 10-year strategic plan hopes to offer increased financial flexibility in allocating an expected £7 billion in free cashflow between investment and shareholder returns. 

For investors, management’s continued prediction for full-year profit to 30 April of £525 million is down on last year’s £557 million. Berkeley’s exposure to the government’s push for more affordable homes is below that of rivals. The group’s relatively new strategic plan could potentially see shareholder returns lowered in favour of increased investment in areas such as new land. A push to develop a rental homes portfolio may dampen near-term earning growth potential, while the uncertain economic backdrop, including elevated borrowing costs and a potential global trade war, continue to overshadow customer demand. 

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On the upside, recent trading has seen a consistently good level of enquiries, with a modest improvement in sales reservations and sales rates ahead of those achieved last year. Berkeley remains encouraged by the relatively new government’s push to lighten planning regulations. The group’s BTR platform is being delivered under flexible terms with sales of the properties also possible, while the housebuilding sector is at least not directly impacted by proposed US trade tariffs. 

For now, high economic uncertainty and expected reduced near-term profits offer reason for caution. That said, Berkeley's enviable track record for navigating difficult market conditions, plus a forecast dividend yield of over 6% will likely make this FTSE 100 housebuilder attractive to some investors. 

Positives: 

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

Negatives:

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

The average rating of stock market analysts:

Strong hold