Shares of this housebuilder have doubled since pandemic lows. Buy, sell or hold?
Trading update from 1 January to 2 May
- Net private reservations per outlet per week of 0.83, up from 0.52
- Forward sales up 30% to nearly £3.7 billion
- Net cash held of over £1 billion
Against a backdrop of highly supportive UK government measures, Barratt Developments (LSE:BDEV) continues to regain momentum lost in the initial pandemic lockdown.
Wholly owned build completions for the year are now expected to be between 16,000 and 16,250, up from a previous range of between 15,250 and 15,750. Forward sales of almost £3.70 billion compares to £2.83 billion this time last year, with strong reservation rates now leaving it fully forward sold for the full-year 2021.
Net cash of just over £1 billion is held, with the housebuilder previously restarting its dividend with an interim payment of 7.5p per share.
More cautiously, build costs are rising while management remains concerned regarding the availability of higher loan to value (LTV) mortgages for new build homes.
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In all, uncertainty regarding UK economic prospects offers room for caution, as do stretched UK government finances and the possible need at some point to reign in the many supportive measures now directed towards the housing market. Concerns for rising inflation following recent commodity price gains also need to be remembered as a trigger for possible hikes in interest rates.
But for now, clear demand for new housing remains central for investors. Cash generation and the recommencement of dividends at both Barratts and rivals resuscitates a core former attraction, with the current market consensus of the shares as a ‘buy’ likely to remain intact.
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