- Full year earnings estimate confirmed
- £283 million cash return also confirmed
- Medium-term forecasts trimmed by 16%
London and South East-focused housebuilder Berkeley (BKG) went some way to soothing investor nerves over the outlook for the rest of this financial year by maintaining its guidance despite posting a slight dip in first-half earnings.
Shares in the group rose 0.6% to £38.22, with shares in similar-sized rivals Barratt Development (BDEV) and Persimmon (PSN) also getting a small lift.
WHY ARE THE SHARES TRADING HIGHER?
Revenues for the six months to the end of October were 2% lower at £1.2 billion, while higher costs took a big bite out of operating profits which dropped 13.7% to £234 million.
However, Berkeley’s share of income from joint ventures more than doubled from £24.7 million to £61.5 million so group pre-tax profits were down just 2% to £285 million.
And thanks to its £2.3 billion order book the firm stuck to its full year pre-tax profit target of £600 million, while its £343 million of cash on hand means it can keep its promise to return £283 million or 260p per share this year through buybacks and a special dividend.
ARE THERE SIGNS OF A SLOWDOWN?
Despite the talk of ‘robust’ results and good order book visibility, Berkeley is seeing the same familiar signs of a slowdown in demand as the other big developers.
While it delivered a total of 2,331 new homes during the six-month period, around 100 more than last year, the value of sales in October was around 25% less than the average of the first five months despite pricing staying ‘firm’.
Also, cancellation rates have moved up ‘from early-teens to around 20%’ in the last couple of months which impacts future sales.
Therefore, the firm said it will ‘focus on matching production on existing sites to demand’, meaning it will scale back new development, resulting in pre-tax profits of just over £1 billion in each of the 2024 and 2025 financial years instead of £1.25 billion per year as previously guided.
It also cautioned that while sales prices had largely offset increased costs in recent years, ‘margins may be placed under pressure if these headwinds do not abate sufficiently and as households and businesses come to terms with heightened inflation, increased interest rates and the more protracted recession articulated by the Bank of England in its most recent forecasts’.
