ii view: does housebuilder Berkeley Group have an edge?

Berkeley Group fell by a fifth in 2022 and is little changed in 2023, but it's done much better than rivals the past month. We assess prospects.

Full-year results to 30 April

• Revenue up 8.6% to £2.55 billion
• Pre-tax profit up 9.5% to £604 million
• Total shareholder returns of £254 million, down from £515 million the year before
• Net cash of £410 million, up from £269 million

Guidance:

• Continues to expect pre-tax profits of at least £1.05 billion across its next two financial years

Chief executive Rob Perrins said:

"Berkeley has delivered pre-tax profits in line with the guidance provided at the start of the financial year, maintained our shareholder returns programme and increased the net cash position.  This is a very strong performance by our sales and construction teams, given market conditions and changing building regulations, and reflects the resilience of Berkeley's business model with its focus on the country's most undersupplied markets.”

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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 and the Southeast of England.

For a round-up of these latest results announced on 21 June, please click here.

ii view:

Berkeley Group highlights itself as the only large UK housebuilder 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. Industry competitors include Barratt Developments (LSE:BDEV), Taylor Wimpey (LSE:TW.), and Persimmon (LSE:PSN). 

For investors, management’s reference to the challenging planning environment and regulatory uncertainty cannot be overlooked, and the tough economic backdrop of rising interest rates is dampening buyer demand. Costs generally for businesses remain elevated, an increase in Corporation Tax offers another headwind, while stretched UK government finances could limit its ability to once again offer assistance to the industry. 

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More favourably, Berkeley has a strong track record of navigating tough volatile market conditions. Forward sales are robust at £2.14 billion, and net cash has grown with its selling prices staying firm and build cost inflation easing. New builds in London remain well below the mayor’s target, while a strong existing land bank may also enable it to better direct cash back to shareholders as it awaits a broader industry recovery, rather buying new land.

A robust history of navigating turbulence and a forecast dividend yield of over 6% arguably pays investors to sit tight. However, cautious investors might prefer a wait-and-see approach while it remains unclear exactly how the current mortgage crisis will impact Berkeley.

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:

Strong hold