A big sign of the more cautious approach taken by London-focused housebuilder Berkeley (BKG) is an increase in net cash at the half year stage to £859.7m.
The company is going through a well flagged transition to a lower level of profit as it moves away from the luxury end of the London market. Revenue for the six months to 31 October is down 1% to £1.7bn but pre-tax profit is down more than 25% at £401m.
Having previously guided profit expectations lower, the company is now doing a bit better than this lower bar with profit guidance for the current financial year upgraded by ‘at least 5%’.
Longer-term guidance is left unchanged and AJ Bell investment director Russ Mould says this ‘looks to be more a case of the good times being extended just a little bit, rather than anything more dramatic’.
The company is looking beyond the capital with its land acquisition strategy, launching the St Joseph division in Birmingham, and all of the sites acquired in the first half were outside London.
Berkeley is not attempting anything too ambitious. ‘The company’s reluctance to take risks at this point in the economic cycle is reflected in a burgeoning balance sheet with the company sitting on nearly £900m worth of net cash, around three times the level from a year-and-a-half ago,’ says Mould
‘The plan for a disciplined approach looks sensible and a renewed dividend commitment suggests that shareholders should be rewarded for their patience during leaner times.’
Berkeley’s chairman Tony Pidgley has a good track record of calling the market - going back to the 1980s when the company was selling ahead of a crash in house prices.
Canaccord Genuity analyst Aynsley Lammin is reassured by today’s results, saying: ‘Given the group's exceptionally impressive track record, the market is likely to be reassured by its recent land buying activity and extension of its capital return program, albeit with one eye on the short-term political drama of Brexit.’
