ii view: Barratt anticipates record full-year profit

by Keith Bowman from interactive investor |

Housebuilder Barratt Developments expects a great year, but factors outside of its control overhang.

Trading update for the year ending 30 June 2019

  • 17,856 homes completed, up from 17,579 a year ago
  • Pre-tax profit seen up 9% at around £910 million
  • Forward sales up 19.7% to £2.6 billion

Chief executive David Thomas said:

"It has been another very good year for the group both operationally and financially. We have delivered our highest number of completions for eleven years, made further improvements to our margin and as the only major housebuilder to be awarded a 5 Star rating for customer satisfaction for 10 years in a row, we continue to lead the industry in quality and customer service.”

ii round-up:

Housebuilder Barratt Developments (LSE:BDEV) was founded in 1953 by Sir Lawrie Barratt. It listed on the stock exchange in 1968. 

It builds all over the country under the Barratts, David Wilson and Wilson Bowden brands and employ over 6,000 people. Around two-thirds of its builds are three or four bed houses.

For a round-up of this trading update, please click here.

ii view:

A no-deal Brexit and the Bank of England's estimate of a possible 30% fall in house prices if we crash out of the European Union top the list of investor concerns. Housebuilders also suffer disproportionately in an economic downturn. However, away from factors outside of its control, Barratt is trading well. A heavy focus on build quality and customer service compares well to the slowdown in completions which such issues have caused at rival Persimmon (LSE:PSN).

Shareholder returns across the housebuilding sector remain a core attraction. A one-year forecast dividend yield of around 8% is especially attractive in the current low interest rate environment, and a price earnings (PE) ratio of well under 9 times is below the 10-year average. That said, until the uncertainty around Brexit is removed, and amid concerns around vulnerability this late in the economic cycle, investor caution appears justified. 

Positives: 

  • 2019 profit tipped to beat analyst forecasts
  • Forward sales rising fast
  • History of returning surplus cash to shareholders

Negatives:

  • Brexit uncertainty overhangs the housing market
  • Help to Buy scheme due to end in 2023
  • Any increase in interest rates could reduce demand

The average rating of stock market analysts:

Strong hold

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.

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