- Private reservations disappoint as buyer confidence wanes
- Company slows its investment programme
- Shares now offer an 11.6% dividend yield
News of a sharp slowdown in private new home reservations over the summer sent shares in developer Barratt Developments (BDEV) to the bottom of the FTSE 250 index as investors headed for the exit.
Shares in the house builder slumped 7% to a new post-pandemic low of 318p, despite the firm promising its earnings would meet market forecasts.
WALL OF WORRY
Net private reservations from the start of July to the beginning of this week are running at an average of 188 per week compared with 281 per week in the same period a year ago.
The company attributes the slowdown to ‘increased wider economic uncertainty, where growing cost of living concerns have been compounded by increased mortgage interest rates and reduced mortgage availability’.
In addition, the firm said it had limited availability of homes for early occupation and it had seen a reduction in Help to Buy activity as the scheme gradually winds down.
As a result of the slower reservation rate, forward sales including joint ventures were 13,314 homes as of the start of this week compared with 15,393 homes a year ago.
That means the company is only 64% forward sold in terms of its full year target compared with 72% this time last year and 70% two years ago.
While average selling prices are significantly higher than last year at an average of £377,200 against £344,300, build cost inflation is still seen rising at between 9% and 10% for the full year which is bad for margins.
MAINTAINING PROFIT GUIDANCE
Faced with the slowdown in forward sales, Barratt said it would ‘closely monitor changing market conditions in the coming months to ensure our site build programmes align with home delivery scheduling to meet customer commitments within our order book, as well as ongoing market demand’.
The firm has also been ‘increasingly selective’ in its land buying meaning it has approved the purchase of just 813 plots so far this year across three sites compared with over 3,700 plots across 15 sites last year.
On a positive note, based on completions to date, its forward order book and ‘robust’ home pricing, the company still expects to meet the consensus forecast of around £970 million in pre-tax profits for this financial year.
Moreover, based on a forecast dividend for the year of 37p the shares are now trading on an 11.6% yield.
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