Interactive Investor

ii view: Berkeley benefits from robust London land bank

21st March 2022 15:19

Keith Bowman from interactive investor

Adding to its land bank and with a focus on shareholder returns, we assess prospects for this FTSE 100 housebuilder. 
 

Trading update from 1 November to 28 February
 
ii round-up:

Housebuilder Berkeley Group (LSE:BKG) was established in 1976. 

Today its brands include Berkeley Homes, St Edward, St George, St James, St Joseph and St William. 

It operates principally in London, Birmingham and the South of England.

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

ii view:

Berkeley's sales are divided broadly evenly between owner-occupiers and investors. It is currently working on just over 60 build projects, of which around half are long-term, complex regeneration projects. Around four-fifths of its sites under construction are located on brownfield land. 

For investors, inflation at a 30-year high, a cost-of-living crisis and likely further interest rate rises all provide for a tough industry backdrop. Rising build costs and ongoing supply chain challenges also warrant consideration, as does the ongoing pandemic, given the hinderance it raised for overseas buyers in travelling and viewing properties. 

On the upside, the recent purchase of a remaining 50% stake in its St William joint venture with National Grid adds to its land bank, lifting earnings estimates by around 5% over the next few years. Cost inflation is being countered by higher selling prices while a recent bank refinancing takes the maturity of its loans out to 2027 from a previous 2023. In all and given both a bolstered land bank and a continued focus on shareholder returns, long-term investors with an eye on income are likely to stay with this London-focused housebuilder.  

Positives: 

  • An industry revered track record
  • A commitment to shareholder returns

Negatives:

  • Rising build costs
  • Uncertain economic and pandemic outlook

The average rating of stock market analysts:

Buy

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