The markets are taking heart from Berkeley's (BKG) interim management statement. It reveals forward sales at the housebuilder now exceed £1.5 billion as consumer confidence returns and government intervention in the housing market starts to feed through. House prices stand 1.8% higher than a year ago, according to new data from Hometrack.


Shares in the £2.8 billion cap rose 2.8% to £21.79 after group chairman Tony Pidgley told investors the firm was well-placed to achieve its profit targets, in line with market expectations. Shareholders can also take encouragement from the statement that Berkeley is well on schedule to meet its first cash return milestone of £568 million by September 2015.


Berkeley will pay a dividend of 59p per share (£77.3 million in cash) on 27 September 2013 to shareholders on the register on 30 August 2013. This leaves 360p per share (£471.5 million) to pay to meet the first milestone by 30 September 2015.


Web chart - Berkeley - Sep 2013

The interim statement, covering the period from 1 May 2013 to 31 August 2013, also contains more encouraging guidance on the group's substantial landbank. Three more sites have been added; a 10 acre redevelopment site in White City, a site in Battersea with an existing detailed planning consent for 456 apartments and a scheme in West Sussex, delivered from the group's future pipeline, for which a consent for 69 new homes was granted in the period. That is not all. Berkeley has also contracted to acquire two further sites in London at Southall and Hornsey on conditional terms.


Government schemes like Help to Buy continue to stoke the UK's housing market. When George Osborne, the chancellor of the exchequer, unveiled the Help to Buy programme alongside the Budget (20 Mar), it was seen as a variation on the theme introduced by earlier schemes such as First Buy and New Buy. The proposed expansion of the project due in January 2014 could take it to a whole new level. It is worth bearing in mind that critics of the scheme are vocal in their concerns about the government inflating another unsustainable housing market bubble.


Housebuilding stocks already have rocketed in acclamation of the policy initiative to trade at levels substantially above book value, as if to price in aggressive increases in land and dwelling prices. Investors now need to ask themselves whether likely earnings forecast upgrades will be enough to carry higher a grouping of stocks which is already trading on multiples last seen at the peak in 2006, at least in terms of price to net asset value (NAV).


Analysts generally remain upbeat despite the valuation concerns. On 2 September, Chris Millington at Numis said Berkeley had 'laid the foundations for short-term growth and long-term cash generation', arguing current forecasts did not adequately capture the strength of the London & South East market. He retains an 'add' recommendation with a price target of £24.78 against a £21.94 share price at the time of writing.

Issue Date: 02 Sep 2013