ii view: Barratt stays optimistic

Barratt shares are down nearly a fifth over 2022 but offer an estimated yield of 6%. Buy, sell, or hold?

First-half results to 31 December

• Revenue down 9.9% to £2.25 billion
• Pre-tax profit up 0.6% to £432.6 million
• Interim dividend up 49.3% to 11.2p per share
• Net cash up 2.3% to £1.132 billion 
• Forward sales up 10% to 15,736 homes

Chief executive David Thomas said:

“We have delivered an excellent first half and the strong rebound in our construction activity means that we now expect to complete more than 18,000 homes, including 750 from JVs, this year, ahead of previous expectations and pre-Covid levels.

“This increase in construction activity has not affected our focus on our customers, on quality and service and on acting in a responsible and ethical way. We continue to work hard to lead the industry in building the high-quality sustainable homes and developments the country needs.”

ii round-up:

Housebuilder Barratt Developments (LSE:BDEV) builds nationally, employing over 6,000 people. 

Approximately two-thirds of its builds are three or four bed houses. Its brands are Barratt Homes, David Wilson and Barratt London. Its commercial business Wilson Bowden focuses on retail, leisure, office, industrial and mixed-use schemes.

For a round-up of these latest results, please click here.

ii view:

Barratt was founded in 1958 and came to the stock market in 1968. Today, it builds both private and affordable housing and over its last full financial year to the end of June 2021 delivered 17,243 new homes. Management is currently working towards a medium-term target of growing build completions to 20,000 homes a year. It recently bought Gladman Developments, a company which both sources and promotes land. Barratt expects to deliver an additional 500 units per annum following its purchase. 

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For investors, elevated UK inflation and likely Bank of England interest rate rises warrant consideration. Rising build cost inflation has been seen, while costs to meet renewed cladding following the Grenfell fire offer uncertainty. It’s also worth remembering that government finances are still tight in the wake of the pandemic, leaving open the possibility of added tax rises.  

But demand for new housing is still robust. Cost material inflation is being countered by rising selling prices and the government has repeatedly shown its appetite to support the housebuilding industry if and when times get tough. In all, and with forward sales up year-over-year and the shares sat on an estimated future dividend yield in the region of 6%, income-oriented investors are likely to stay interested.  

Positives: 

• Offers regional UK geographical diversity
• Attractive dividend yield

Negatives:

• Uncertain economic outlook
• Facing cladding costs

The average rating of stock market analysts:

Strong buy