ii view: Barratt's a play on interest rates and cost cuts

Full-year results to 30 June

• Revenue down 22% to £4.17 billion
• Adjusted pre-tax profit down 57% to £385 million
• Final ordinary dividend of 11.8p per share
• Total dividend for the year down 51.9% to 16.2p per share
• Net cash down 19% to £868.5 million

Guidance:

Continues to target year ahead home completions of between 13,000 and 13,500, down from this year’s 14,004 (excluding Redrow)

Chief Executive David Thomas said:

"We were delighted to complete the acquisition of Redrow plc in August and are now working constructively with the CMA to finalise competition clearance so that we can begin the integration process

"Whilst demand continues to be sensitive to mortgage affordability, and reduced land buying activity during the past two years has had a near-term impact on the number of outlets we are operating from, we are well-positioned to meet the strong underlying demand for new homes of all tenures in the UK. 

"We welcome the Government's proposed reforms of the planning system as one of the key levers to increase housebuilding, drive economic growth and tackle the chronic undersupply of high-quality, sustainable homes."

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ii round-up:

Housebuilder Barratt Developments (LSE:BDEV) builds nationwide, employing around 6,000 people. 

Just under two-thirds of its builds are three or four bed houses, with a further 15% one and two bed homes and close to 20% flats both in and out of London. 

Group brands are Barratt Homes, David Wilson and Barratt London. Commercial builds for retail, leisure, office, industrial and mixed-use schemes are made under the business Wilson Bowden banner.

For a round-up of these latest results announced on 4 September, please click here.

ii view:

Started in 1958, Barratts is today a constituent of the FTSE 100 index. Rivals include Persimmon (LSE:PSN) and Taylor Wimpey (LSE:TW.), with Barratt previously making a £2.5 billion bid to buy mid-sized rival Redrow. UK regulatory clearance of the acquisition is expected in October. 

For investors, the UK economic outlook remains uncertain, with interest rates unlikely to return to former lows. Subdued consumer demand is expected to see build completions for the year ahead down on the previous year, although before the expected completion of the Redrow acquisition. Government pledges regarding planning reforms are at an early stage and could hit bumps in the road, while a forecast price/earnings (PE) ratio above the three- and 10-year averages may suggest the shares are not obviously cheap. 

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To the upside, the expected completion of the Redrow acquisition will add scale and see cost cuts made. Sales rates have recently improved, likely buoyed by ongoing consumer hopes about interest rate cuts. Potential government action to cut planning hurdles should prove favourable for the sector overall, while current net cash held points to a robust balance sheet. 

Positives: 

• Offers regional UK geographical diversity
• Net cash held

Negatives:

• Uncertain economic outlook
• Reduced dividend payout

The average rating of stock market analysts:

Hold