- Annual profit better than feared
- FY25 profit guidance upped by 5%
- Berkeley branches out into Build to Rent
High-end housebuilder Berkeley (BKG) has upgraded its full-year 2025 pre-tax profit guidance after delivering a resilient performance last year despite the ‘challenging and volatile’ market backcloth.
The FTSE 100 builder also flagged signs that the housing market outlook is improving with inflation greatly reduced and a first interest rate cut from the Bank of England expected later this year.
However, shares in the brownfield regeneration specialist cheapened 3.5% to £48.40 as some investors booked profits following a recent strong run and others focused on the modest drop in margins and profit reported for the year to April 2024.
Also weighing on sentiment was the cautious medium term outlook from Berkeley, which warned pre-tax profitability could be anchored around the level expected for full year 2026 until ‘the planning and regulatory environments unlock’.
SOLID FOUNDATIONS
The London-focused housebuilder’s results for the year to 30 April 2024 revealed a 7.7% drop in pre-tax profit to £557.3 million, better than the £550 million called for by consensus.
Berkeley also increased its net cash position by £122 million year-on-year to over £500 million. Careful cash stewardship enabled the company to continue rewarding shareholders with returns of capital.
While sales reservations were down around a third last year, reflecting higher interest rates and weak economic sentiment, Berkeley said pricing and margins have remained firm and build cost inflation is at ‘negligible levels’.
As a result, the builder confidently increased its full year 2025 pre-tax profit guidance by 5% to £525 million and reaffirmed its full year 2026 target of £450 million.
CEO Rob Perrins commented: ‘We continue to see good levels of enquiry for well-located homes built to a high standard of design and quality but recognise that the current lack of urgency in the market is likely to remain until the long-anticipated reduction in interest rates commences.’
Perrins added: ‘Berkeley continues to benefit from a strong order book and has already secured 80% of its sales for next year, underpinning today’s 5% increase in guidance for full year 2025’s pre-tax profit to £525 million, with guidance for full year 2026 re-affirmed at £450 million.’
BERKELEY BRANCHES OUT
And in a significant development, the brownfield regeneration specialist also announced plans to establish its own Build to Rent platform.
Berkeley aims to develop 4,000 homes over the next ten years in order to capitalise on high rental demand in the capital. It will fund this from a mixture of internal funds, bank debt and eventually external funding.
Wealth Club’s Charlie Huggins said the news ‘seems like a shrewd move, giving Berkeley greater capital deployment options. However, it could also be a sign that Berkeley believes tough housing market conditions are here to stay.’
Dan Coatsworth, investment analyst at AJ Bell, said it will take time for Berkeley to build up this side of the business, but it ‘could eventually provide a useful source of diversification given the rental space tends to be steadier than the wider property market. Berkeley’s moves tend to be widely followed in the industry, thanks to its late founder Tony Pidgley’s reputation as a shrewd operator.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Martin Gamble) own shares in AJ Bell.
