- Solid first four months
- 90% of annual earnings in the bag
- Berkeley supports planning system changes
High-end housebuilder Berkeley (BKG) welcomed planning reforms proposed by the new UK government as the FTSE 100 company assured investors it is ‘on target’ to meet recently upgraded earnings guidance for the year ending 30 April 2025.
The London-focused property developer and housebuilder said ‘trading has been stable’ over the four months to 31 August 2024.
As a result, Berkeley still expects to deliver full year pre-tax profits of £525 million, 90% of which is already secured through exchanged sales contracts.
Despite the positive update, Berkeley’s shares cheapened 1.6% to £49.12, investors perhaps disappointed by the absence of another profit upgrade on the day Halifax reported further house price growth for August.
The average cost of a home now close to its June 2022 record high in a UK housing market where supply and demand dynamics are supportive and it does not take much to stoke prices.
A first cut to interest rates in the current cycle by the Bank of England has helped with pushing mortgage costs lower and provided buyers with the confidence to press ahead with purchases.
MARGINS INCHING AHEAD
Berkeley, the brownfield regeneration specialist led by CEO Rob Perrins, expects full year profit to be weighted toward the first half, which means the annual operating margin will be slightly ahead of the builder’s 17.5% to 19.5% long-term range.
Net cash at 31 October 2024 will be around £450 million.
That’s down from £532 million as of 30 April 2024 following shareholder returns of £229 million in the first half, including the £184 million proposed special dividend that is subject to approval by shareholders at today’s (6 September) annual general meeting.
Berkeley said it ‘supports the proposed changes to the planning system and the government’s aspiration to deliver 1.5 million new homes across this Parliament as part of its mission for growth’ and is ‘committed to playing its full part in delivering the new homes the country needs.’
Charlie Huggins, manager of Wealth Club’s Quality Shares Portfolio, pointed out that the current planning system has been a source of frustration to Berkeley for years.
‘Constant barriers, delays and regulatory changes have created nothing but uncertainty, and the system appears to be far more complex than it needs to be,’ observed Huggins.
‘This means it has been very difficult for the likes of Berkeley to get new developments across the line. So, it’s no surprise that Berkeley welcomes plans from the new Labour government to reform the planning system and prioritise the building of new homes with open arms.’
'NOT STRAIGHTFORWARD'
However, Huggins stressed that this ‘will not be straightforward and it remains to be seen whether Labour can back up its words with the right actions. If it can, Berkeley stands to benefit handsomely, and so does the country at large given the chronic shortage of new homes.’
Russ Mould, investment director at AJ Bell, said Berkeley is seen as one of the best quality operators in the housebuilding space and has ‘its usual mix of good visibility on revenue and shareholder returns, underpinned by a strong balance sheet.’
Mould continued: ‘Under its late founder, Tony Pidgley, the company had a reputation for being spot on with calling shifts in the housing market. Berkeley has welcomed the proposed planning reforms unveiled by the Labour administration and it will be interesting to see what the company has to say when it announces its first half results in December, and whether it is looking to ramp up its building efforts and/or land investments.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Steven Frazer) own shares in AJ Bell.
