Despite a big fall in first half profit housebuilder Berkeley (BKG) is up 0.2% to £45.60. The company had done a good job of communicating to the market that its profit had peaked so investors are taking the news in their stride.

The company sold fewer homes at lower prices in the period and for the six months ended 31 October, pre-tax profit fell 31% to £401.2m on-year and revenue fell 41.3% to £931m.

The homebuilder sold 1,389 homes, down from 2,027 from the same period a year ago, at an average selling price of £644,000, down from £740,000. Berkeley is essentially characterising this as a return to normality.

AJ Bell investment director Russ Mould says: ‘Former Arsenal football manager Arsene Wenger once observed after a drop off in his team’s performance that “if you eat caviar every day, it’s difficult to return to sausages”.

‘This is the situation facing investors in housebuilder Berkeley which, in reporting a big drop in first half profit and revenue, is a victim of its own success.

‘Chairman and founder Tony Pidgeley has a reputation as an industry sage and the company delivered exceptional returns having acquired land cheaply in the wake of the financial crisis, largely in London and the South East, and then building high end properties which generated exceptional margins.’

As Mould observes, shareholders are at least being compensated by generous capital returns, backed by a strong balance sheet and robust cash flow.

Canaccord Genuity analyst Aynsley Lammin says: ‘Profits are normalising following the very strong selling period in London to 2014 as previously guided by management. Clearly the London market has been subdued over recent years and the group is seeing profits and returns fade on the back of this, but cash balances increase as less investment is made.’


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Issue Date: 06 Dec 2019