- First-half sales up on prices and order backlog
- Net weekly reservations improve in January
- New dividend policy suggests earnings may fall
Leading UK housebuilder Barratt Developments (BDEV) posted an upbeat first-half trading update but hinted full-year earnings could be lower than last year due to the ‘challenging trading conditions’ it faces going forward.
The shares gained 1.8% to 468p as investors took comfort from the fact the firm’s rhetoric was more upbeat than at its last update.
STRONG FIRST HALF DUE TO ORDER BACKLOG
The group reported a 23.9% increase in revenue to £2.78 billion for the six months to December thanks to a ‘significant forward order book’ at the start of the period.
Housing completions rose 6.9% to 8,626 units from 8,067 the previous year, suggesting prices were up more than 15% during the half.
However, consumer confidence was hammered in the last quarter of last year by the disastrous ‘mini-Budget’ and a spike in mortgage rates resulting in much lower levels of reservations for future sales.
In its trading update last month, the company said net private reservations per week were 0.44 during the first half, falling to just 0.3 in the final quarter of last year.
On the assumption net reservation rates recovered to 0.5 homes per week this spring, the firm said it remained on track to deliver close to 17,500 homes over the full year, while without the normal seasonal improvement completions would be between 16,000 and 16,500.
Today, the firm said reservations had averaged 0.49 homes per week in January and it was revising its forecast for the full year to between 16,500 and 17,000 completions for the full year, an improvement on its previous guidance but still below its original full-year target.
DOES THE ‘REBASED’ DIVIDEND HIDE A WARNING?
One aspect of the trading statement which seems to have been overlooked by most investors is the reduction in the first-half dividend in line with the company’s policy of reducing its dividend cover.
Last year, the firm paid out total dividends per share of 36.9p from adjusted earnings per share of 83p, meaning dividends were covered 2.25 times.
This year, the company aims to reduce its cover to just two times, and has cut the interim payout by 8.9% from 11.2p to 10.2p per share, despite adjusted earnings increasing by 9% from 35.9p to 39.2p per share.
If management is aiming for the full-year dividend cover of two times, and it leaves the final dividend unchanged at 25.7p, making the total payout 35.9p, it implies full-year adjusted earnings will be in the region of 72p or around 15% lower than 2022.
If the full year dividend is also shaved by 9% to 23.4p, the full-year payout would fall to 33.6p implying adjusted earnings of 67p or a reduction of nearly 20% compared with 2022.
The picture is slightly muddied by the decision to resume the share buyback, but however we look at it this appears to be a veiled warning that earnings are going to be down on last year.
