Housebuilder Barratt Developments (BDEV) has delivered a strong set of numbers, but the market may be disappointed that the company met its 20% full year gross margin target, instead of exceeding it.
The disconnect between the numbers and market expectations has punished the stock, which has fallen 4% to 600.5p.
In the year to 30 June 2017, gross margins were up 1.1% to 20% under Barratt’s initiative to increase efficiencies, reduce costs and simplify the business.
Liberum’s Charlie Campbell says Barratt is his ‘least preferred’ in the sector as its relatively lower margins make it more exposed to downside risk.
The analyst also believes the company’s relatively short landbank and high land creditors limits its ability to reduce cash outflows to support the dividend.
In terms of current trading, net private reservations per active outlet per average week from 1 July were in line with the prior year at 0.74 (2017: 0.75).
Campbell says reservations were ‘flat’, a good level which is consistent with peers. However, he flags that Redrow (RDW) said London performed strongly in this area - but Barratt has a more significant presence in the city, implying it should be performing better.
Barratt delivered a 12.1% increase in pre-tax profit to £765.1m last year, which is expected to increase to £791.7m in the year to 30 June 2018 and to £840.3m in 2019.
Canaccord Genuity’s Aynsley Lammin is more upbeat as recent trading is consistent with the sector, but flags the recent sales rate was ‘flat at healthy levels’ instead of increasing.
