- Reservations slow but completions and prices rise
- Share buyback programme to resume
- Stock price barely changed after early dip
Shareholders in Barratt Developments (BDEV) breathed a sigh of relief after the firm published a half-year trading statement which was less negative than feared and included a commitment to continue its share buyback.
After initially sliding 4%, the shares recovered to trade down 0.5% at 421p by mid-morning.
LESS BAD THAN EXPECTED
With mortgage lending shrinking and building societies predicting a fall of between 5% and 10% in house prices this year, investors were braced for a downbeat statement.
Instead, they were able to take comfort from the firm’s ‘fundamentally strong’ business and its strong net cash position which should see it through the coming downturn.
Chief executive David Thomas conceded the firm had seen ‘a marked slowdown’ in the housing market in the second half of 2022, which was ‘compounded by rapid and significant changes in mortgage rates which reduced affordability, homebuyer confidence and reservation activity through the second quarter’.
Net private reservations per active outlook were 0.44 per week compared with 0.77 a year earlier, with that rate falling to 0.3 by the end of last year.
However, Barratt still delivered 8,626 completions in the first half including joint ventures compared with 8,067 the previous year and it still has a forward order book of £2.5 billion.
The average selling price was 14.6% higher than the previous year at £330,000 compared with £288,000 thanks to a higher proportion of London completions and underlying house price inflation.
Assuming net reservation rates increase in line with normal Spring trading patterns to around 0.50 homes per active outlet per week, the company remains on track to deliver consensus total home completions of 17,475.
If there is no seasonal improvement and trading remains at recent levels, total home completions for the year to June are expected to be in the range of 16,000 to 16,500 meaning a shortfall of between 6% and 9% against current forecasts.
PROTECTING THE BALANCE SHEET
The firm has been ‘very selective’ with its land purchases, with 16 new sites approved, accounting for 3,003 plots, but 22 previously-approved sites being cancelled meaning a net drop of six sites and 290 plots.
Given the strength of its existing land bank, the group expects approvals going forward will be ‘substantially below replacement level’ allowing it to bolster its balance sheet.
Net cash as of the end of December was £965 million against £1.13 billion the previous year due to committed land spend from prior-year approvals, working capital needs, the payment of the final dividend for last year and £100 million of share buybacks.
The good news for shareholders is, having already purchased 26.3 million shares for cancellation, the group intends to restart the buyback programme once the interim results are published next month and there is no suggestion the dividend payout will be reduced.
