Berkeley (BKG) gains 4.1% to £26.49 as investors look past a 20% drop in reservations and focus instead on the high-end housebuilder's plans to buy back its own shares.
Shares in Berkeley are still down by more than a fifth on the levels prior to the Brexit vote but are clawing back some of those losses today following a half-year results statement.
Change to Berkeley's capital returns programme mean cash will be returned to shareholders through a mix of share buybacks and dividends, rather than dividends exclusively.
Shares has written before about the relative merits of buybacks and dividends but one conclusion to draw is that the company feels its stock is too cheap. This could be taken as a reassuring sign by investors.
AREAS OF CONCERN
However, there are some items of concern in the results. New profit guidance of £3bn over the next five years implies a cumulative pre-tax target of £1.5bn in the three-year period to April 2021, this represents a significant slowdown on the £1.5bn in pre-tax profit due to be delivered in the next two financial years (to April 2018).
Forward sales are down from £3.25bn in April to £2.9bn and cost inflation stands at 4%.
Davy, which rates the stock 'underperform' comments: 'The new five-year guidance suggests a materially lower profitability level in the latter part of this decade as the current exceptionally high margins normalise. However, the introduction of potential buybacks may temper too much negativity.'
