ii view: Berkeley gives thumbs up to government housing plan

Early financial year trading update from 1 May to 31 August

• Continues to expect full-year pre-tax profit of £525 million, down from last year’s £557 million

Management comment:

“Berkeley supports the proposed changes to the planning system and the Government's aspiration to deliver 1.5 million new homes across this Parliament as part of its mission for growth. Achieving this ambition requires a change of attitude and a refreshed partnership approach to allow developments, that are currently stalled, to come forward and Berkeley is committed to playing its full part in delivering the new homes the Country needs.”

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ii round-up:

Housebuilder Berkeley Group Holdings (The) (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 Southeast, building more than 19,600 homes over the last five years.

For a round-up of this latest update announced on 6 September, please click here.

ii view:

Berkeley Group highlights itself as the only large UK homebuilder focused on the regeneration and reviving of disused and underused land to build mixed-use neighbourhoods within the UK's most undersupplied markets. A constituent of the FTSE 100 index, it is the largest contributor to new homes in London. Industry competitors include Barratt Developments (LSE:BDEV), Taylor Wimpey (LSE:TW.) and Persimmon (LSE:PSN). 

Berkeley previously outlined plans to establish a “Build to Rent” platform, with 4,000 of its builds over the next 10 years being kept by itself and rented to tenants. Berkeley highlighted that only 3% of the UK's Private Sector Rental sector is owned by institutions, versus 40% in the US and 37% in Germany.

For investors, the tough economic backdrop including high borrowing costs continues to overshadow forward sales. A review of the industry by the UK’s Competition and Markets Authority is ongoing. Berkeley’s move to build and rent will tie up capital which could otherwise be used elsewhere, such as for buying land, while a forecast price-to-net asset value of 1.4 times compares to rivals Barratts and Crest Nicholson Holdings (LSE:CRST) at under one, suggesting potentially better value elsewhere. 

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On the upside, Berkeley has welcomed the new government’s housing plans, with the builder now likely evaluating its own way forward under potential partnership agreements. The group has an enviable track record of navigating difficult market conditions, its ‘Build to Rent’ platform is being delivered under flexible terms with sales of properties also possible, while cost inflation has eased across the industry. 

In all, and despite continued risks, year ahead profit guidance underpinned by exchanged sale contracts plus a forecast dividend yield of around 5%, will likely secure the loyalty of fans of this upmarket housebuilder.

Positives: 

• An industry revered track record
• Enjoys interest from overseas customers

Negatives:

• Uncertain economic outlook
• Ongoing CMA review

The average rating of stock market analysts:

Hold