Barratt Developments update offers hope
11th July 2018 10:39
by Richard Hunter from interactive investor
Housebuilders are out of favour, but Barratt offers a big dividend and the shares are cheap. Richard Hunter, head of markets at interactive investor, brings us up to speed.
Barratt Developments has issued a trading update for the year ended 30 June 2018 which is extremely encouraging, and one which could prompt a review of the presently beleaguered housing sector.
The company is guiding that pre-tax profit is likely to have risen by 9% and the net cash position by a similar amount. Operating margin has increased, forward sales are strong and the company has seen the highest level of completions in a decade.
Robust cash generation has enabled a generous round of capital returns, and the prospective dividend yield of around 8% is an open invitation for income seeking investors to become involved. In addition, the previous tailwinds, such as historically low interest rates, government assistance and an overall supply demand imbalance in housing remain intact.
Source: interactive investor Past performance is not a guide to future performance
The problems which Barratt is facing are, for the most part, not of its own making. Mixed economic data, the possibility of rising interest rates, perhaps even as early as next month and falling house prices have weighed heavily on the sector.
The ongoing uncertainty around the implications of Brexit on the economy shows no signs of abating as the strategy (and indeed composition) of the government remains unclear.
These bigger picture considerations have meant that the sector has generally fallen out of favour.
Source: interactive investor Past performance is not a guide to future performance
Indeed, concerns around the UK's current economic plight have been enough to take the wind out of Barratt's sails, with the shares having lost 18% over the last year, as compared to a 4.4% gain for the wider FTSE 100, and down 12% in the last three months alone.
Even so, the update is impressive, and with the shares still trading on an undemanding valuation, the market consensus is likely to remain resolute at a 'buy'.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.