Interactive Investor

Barratts looks strong, but investor worries mar share price

8th January 2021 10:29

Richard Hunter from interactive investor


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Housebuilder unveils dividend return amid solid trading update.

Housebuilder Barratt Developments (LSE:BDEV) continues to plough on regardless. The strength of the company’s half-year trading update to 31 December, and the resumption of the dividend next month, have both been warmly received.

The group continues to build on strong foundations, with growth underpinned by a strong financial position.

The net cash position of £1.1 billion compares to £570 million just three months ago and £308 million in June. Alongside the strength of current trading and the ability to add further and selectively to its landbank, Barratts has announced the return to the payment of its dividend at its results in February.

This is of particular interest to income-seeking investors who had previously enjoyed a yield of around 7% on the shares, although the immediate return to such a level is of course not guaranteed.

In the meantime, net private reservations have normalised, but were still ahead by 11.6% in the period. Home completions also advanced by 9.2% with an increase of 1.1% in the average selling price.

The continued tailwinds of low interest rates, mortgage availability, the stamp duty holiday and pent-up demand from the initial lockdown all combined to drive business on, with an increase of total forward sales of 14.3% suggesting a promising outlook.

A small fly in the ointment has seen Barratts becoming something of a victim of its own success, in that the second half of the year will require a switch to concentrating on building activity rather than completions, as the company replenishes its stock.

More broadly, the threat of economic uncertainty from both Brexit and the pandemic fallout could weigh on prospects, as well as the end of the stamp duty holiday and amendments to the Help to Buy scheme.

Unfortunately these overhanging concerns have been the key driver of the share price performance. Despite a recent rally, the shares remain down by 9% over the last year, as compared to a drop of 13% for the wider FTSE 100 index.

Appetite for the stock remains undiminished, however, with the market consensus of the shares as a strong ‘buy’ underlining Barratts’ position as the preferred play in the sector.

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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.

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