Interactive Investor

ii view: Berkeley Group confident enough to keep guidance

4th September 2020 11:39

Keith Bowman from interactive investor

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This housebuilder has an enviable track record, but challenges ahead cannot be ignored. 

Trading from 1 May to the end of August

  • Continues to expect full-year pre-tax profit of £500 million
  • Remains committed to shareholder returns of £280 million per year
  • Net cash of over £1 billion ahead of a pending dividend payment

ii round-up:

London, Birmingham and South East focused housebuilder Berkeley Group (LSE:BKG) today flagged resilient trading during the first four months of its new financial year. 

Expectations for full-year pre-tax profit in the region of £500 million were reiterated, while it reaffirmed a commitment to return £280 million per annum to shareholders.

The update also coincided with news of a competition probe by the UK authorities into four rival housebuilders - Barratt Developments (LSE:BDEV), Persimmon (LSE:PSN), Taylor Wimpey (LSE:TW.) and Countryside Properties (LSE:CSP). The Competition & Markets Authority is investigating the sale of leasehold homes and potential breaches of consumer protection laws.

Berkeley Group shares rose by less then 1% in early UK trading. Barratts, Persimmon and Taylor Wimpey all drifted marginally lower. Berkeley Group shares for the year-to-date are down around 11%. Barratt and Taylor Wimpey are down by more than 25%. 

The trading statement accompanying its annual general meeting marked Berkeley’s first update since the death of its founder and former chief executive and chairman Tony Pidgley - who passed away in late June aged 72. 

Berkeley’s forward sales are expected to remain above the £1.8 billion level reported at the end of its last financial year. Prior to the payment of a pending dividend, it holds net cash in excess of £1 billion. 

Profit for the year to the end of April fell by 35% year-over-year, although was considered by management to have hit a more normal level. This followed the delivery of several London developments acquired in the post financial crisis period at value land prices.

ii view:

Berkeley’s track record and prudent business model have helped give it something of a revered reputation among investors within the housebuilding sector. Founder Tony Pidgley was arguably the dominant force behind its revered status, regularly calling the ups and downs of the property market. 

Both the pandemic and Brexit, given its potential impact on overseas buyers, now offer challenges, along with the loss of its guiding light Mr Pidgley. A strong presence in London has also left Berkeley more subject to international buyer and property investor considerations. But over the years difficulties have often provided opportunities, as Berkeley demonstrated with its land buying after the financial crisis. A recent and previously announced deferring of £455 million return to shareholders may be the basis of it seeking such new opportunity. 

For investors, ongoing Covid uncertainty cannot be forgotten, while Brexit challenges could return later in 2020 as the UK looks to conclude an exit deal with the EU. However, the group’s revered track record and focus on shareholder returns make Berkeley a popular choice among investors wanting exposure to the sector.

Positives: 

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

Negatives:

  • Profit fell 35% over its last full-year
  • Both Covid-19 and Brexit offer ongoing uncertainty

The average rating of stock market analysts:

Strong hold

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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