ii view: housebuilder Barratt Developments conserving cash

Full-year results to 30 June

• Revenue up 1% to £5.3 billion
• Adjusted pre-tax profit down 16% to £884 million
• Final ordinary dividend of 23.5p per share
• Total dividend for the year down 8.7% to 33.7p per share
• Net cash of £1.07 billion, down from £1.14 billion a year ago

Guidance:

• Targeting year ahead home completions of between 13,250 and 14,250, down from 17,206

Chief Executive David Thomas said:

“Today’s results reflect the hard work and dedication of our teams and the decisive actions we have taken as a business to respond to market conditions. Whilst we expect that the backdrop will continue to be difficult over the coming months, we are a resilient business with a strong balance sheet and an experienced management team.”

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ii round-up:

Housebuilder Barratt Developments (LSE:BDEV) builds homes nationwide, employing over 6,000 people. 

About two-thirds of its builds are three or four bed houses. Its brands are Barratt Homes, David Wilson and Barratt London. Its commercial business Wilson Bowden focuses on retail, leisure, office, industrial and mixed-use schemes.

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

ii view:

Started in 1958, Barratts is today the UK’s biggest housebuilder by stock market value, ahead of rivals Berkeley Group Holdings (The) (LSE:BKG), Taylor Wimpey (LSE:TW.), and Persimmon (LSE:PSN). A constituent of the FTSE 100 index, it builds both private and affordable housing across the UK, constructing 17,200 homes over this latest year, down from 17,900 the year before. 

For investors, increased borrowing costs are now affecting the ability of new customers to meet required mortgage payments, sales rates are down, and build cost inflation has been running above house price inflation. Challenges with the planning system continue to be battled, previous government industry support schemes such as the ‘Help to Buy’ scheme have been withdrawn, while the challenging trading backdrop is encouraging management to conserve cash. That's resulted in a cut in the dividend payment, leaving analysts predicting a dividend yield of under 4%. 

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On the upside, management actions to adjust to a more difficult environment include reducing completions in reaction to reduced demand and trimming the dividend to conserve cash - net cash of £1.04 billion is held. A price-to-net asset value below the three-year average suggests the shares are not historically expensive, while hopes that UK interest rates may now have peaked have been boosted by a surprise retreat in inflation. 

Management actions to tackle challenging trading and help it prepare for any potential recovery offer reassurance. While more conservative investors are likely to await firmer evidence of a recovery in the housing market, others may take a longer term view ahead of the point at which the cycle turns in Barratt's favour.  

Positives: 

• Offers regional UK geographical diversity
• Attractive dividend yield (not guaranteed)

Negatives:

• Uncertain economic outlook
• Elevated build costs

The average rating of stock market analysts:

Buy