ii view: Barratt Developments enjoys robust demand

Shares in this housebuilder are up over 450% in the last 10 years. What about the next 10?

First-quarter results to 11 October

• Net private reservations up 20.8%
• Home completions up 24% to 4,032
• Forward sales up 17% to 15,135 homes
• Net cash of £508 million

Chief Executive David Thomas said:

"Health and safety remains our number one priority and we remain focused on keeping our people safe while we rebuild completion volumes, bring further operational improvements to our business, and deliver on our commitment to build the highest quality homes across the country.

"There is continuing strong customer demand for our homes and we have a healthy forward order book. As we look ahead, whilst significant economic and political uncertainties persist, we believe our disciplined approach and strong balance sheet provide us with the resilience and flexibility to react positively to future challenges."

ii round-up:

Housebuilder Barratt Developments (LSE:BDEV) builds nationally, employing over 6,000 people across six regions and 27 operating divisions. 

Approximately two-thirds of its builds are three or four bed houses. Its brands are Barratts, David Wilson and Wilson Bowden.

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

ii view:

Ultra-low interest rates and the government’s help-to-buy-scheme introduced in the aftermath of the 2008 financial crash have proved a boon for housebuilders. Combine the red tape of council planning and a shortage of housing, and the result has been rising house and land prices. Both of which have helped housebuilders to make significant shareholder returns in recent years. 

At the end of 2019, housebuilder dividend yields at or close to double digits were not uncommon. This came on top of triple-digit share price gains over the last 10 years. Barratt shares are up over 450% since 2010. 

But build site closures under the Covid-19 pandemic have hit returns. Full-year pre-tax profit to the end of June this year fell by 46% to £492 million. Along with the already announced non-payment of normal dividends to conserve cash in uncertain times, Barratt recently cancelled a previously scheduled 2021 special dividend totalling £175 million.

For investors, the scrapping of both ordinary and special dividends removes what was a core attraction. A decline in the share price of around 30% year-to-date adds further to shareholder misery. But build sites are now back open, with management fully aware of the importance of dividends to shareholders, and forward sales are up by 17%. In all, despite ongoing pandemic and Brexit related uncertainty, evidence of demand for new houses remains robust.  

Positives: 

• Offers regional UK geographical diversity
• Forward order book up 17% to £3.65 billion

Negatives:

• Pre-tax profit for the last financial year down 46%
• Dividend payments suspended

The average rating of stock market analysts:

Strong buy