Volume housebuilder Barratt Developments (BDEV) gained 6.6% to 538p on a combination of the strong recent trading unveiled alongside full year results and the record UK house prices lifting the rest of the sector.
Dividends remain off the table at Barratt as it announced that for the year ended 30 June 2020, pre-tax profit dropped to £491.8 million from £909.8 million year-on-year, as revenue fell 28% to £3.4 billion.
It flagged £74.3 million of Covid-19-related costs owing to significantly reduced completion volumes and increased expenses. Home completions slumped 29% to 12,604.
The company said it would no longer propose the fiscal 2021 special dividend of £175 million, which would have been payable in November 2021.
Barratt is seeing strong demand following the property market’s emergence from hibernation. with net private reservations per average week of 314 against 250 for the previous year, translating in turn into net private reservations per active outlet per average week of 0.94 versus 0.68. A 62% increase in home completion volumes in the eight weeks to August 23, 2020, to 1,439 was also reported.
PENT-UP DEMAND
This surge in activity was attributed to a combination of pent-up demand, the impact of the stamp duty holiday and the changes to the Help to Buy scheme coming in April 2021, suggesting the strong trading might be restricted to the short term.
Separately, data from Nationwide showed a 2% increase in UK house prices in August - the highest monthly rise in 16 years - to fresh record levels. This boosted the shares of other housebuilders including Persimmon (PSN), up 3.5% to £26.39 and Taylor Wimpey (TW.), ahead by 4.3% at 122.7p.
AJ Bell investment director Russ Mould said: ‘News of UK house prices hitting record highs may provide some short-term fizz for Barratt and the rest of the sector but there could be a lingering hangover to come.
‘Unemployment and a buoyant housing market typically don’t make for good bedfellows, so rising levels of joblessness are almost certain to create headaches in due course.
‘If Barratt is in for a period of weaker demand then it will need to maintain a strong balance sheet as a buffer, enabling it to come out the other side ready to take advantage of any eventual recovery.
‘Relative financial strength would also allow Barratt to add to its land bank at a time when prices are likely to be at bombed-out levels. This would have positive implications for long-term profitability although such considerations are a long way off just now.’
