- Annual profit slumps less than expected
- Green shoots of recovery after rate cut
- Working with CMA to clear Redrow acquisition
Against a tough market backdrop, housebuilder Barratt Developments (BDEV) delivered a resilient full year performance with adjusted pre-tax profit slightly ahead of market forecasts and the company’s expectations.
Beating estimates would ordinarily be a positive, but with equity markets falling in response to a big drop in US indices overnight, Barratt shares were marked down 12p or 2% to 508.2p in early trading.
The shares are up 14% over the last year compared with an 11% gain in the FTSE 100 index.
WHAT DID THE COMPANY SAY?
Chief executive David Thomas commented: ‘We are pleased to have delivered total home completions at the upper end of our expectations for the year, despite the challenging backdrop.
‘Whilst demand continues to be sensitive to mortgage affordability, and reduced land buying activity during the past two years has had a near-term impact on the number of outlets we are operating from, we are well-positioned to meet the strong underlying demand for new homes of all tenures in the UK.’
Full year revenue to 30 June fell 22% to £4.2 billion reflecting a 19% decline in completions and lower average selling prices. Adjusted pre-tax profit dropped 56% to £385 million, ahead of market expectations of £365 million and helped by completions at the upper end of the expected range.
While management referenced continued affordability constraints for home buyers, the cut to official interest rates in August seems to have had a positive effect on sentiment.
Average weekly net private reservations per outlet increased to 0.58 units between 1 July to 25 August compared with 0.42 homes in the same period a year ago.
The company said it was ‘delighted’ to complete the acquisition of rival Redrow and is working with the competition authorities to obtain clearance.
EXPERT VIEW
Russ Mould, investment director at AJ Bell, commented: ‘Despite all the talk that the UK property market has shown resilience in the face of high borrowing costs, the backdrop has not created a rich environment for Barratt Developments to prosper.
‘A slump in annual profits is the result of lower home completions, weaker average selling prices and reduced margins.
‘Barratt really needs Number 10 to get its skates on and push through planning reforms so it can get more creative in where to build new homes. Until that happens, and until interest rates come down further, the business doesn’t have a lot of levers to pull to dramatically improve earnings.’
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Martin Gamble) and the editor (James Crux) own shares in AJ Bell.
