ii view: Berkeley Group executes sensible long–term strategy

First-half results to 31 October

• Revenue down 7.8% to £1.18 billion
• Pre-tax profit down 7.7% to £254 million
• Forward sales down £266 million from a year ago to of £1.137 billion
• Net cash held of £342 million, up from £337 million in late April
• Net asset value (NAV) up 5% to £37.63 per share
• Share buybacks of £132 million, up from £23 million in H1 last year

Guidance:

• Continues to expect full-year 2026 pre-tax profit of £450 million 
• Continues to expect FY 2027 pre-tax profit of a similar level to 2026

Chief executive Rob Perrins said:

“This highly creditable performance reflects exceptional operational execution in a very challenging macro-economic and regulatory environment, the quality of our market-leading homes and the strength of our unique long-term operating model.

“Customer interest has been good in the period, evidenced by the level of enquiries and leads we are experiencing. However, the market has remained constrained by higher than anticipated interest rates and macro-economic uncertainty.

“Based on our current financial position and operational focus, coupled with the dislocation in the share price, we will prioritise shareholder returns in this environment.”

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ii round-up:

Berkeley Group Holdings (The) (LSE:BKG) was founded in 1976, with the housebuilder today operating principally in London, Birmingham and the Southeast. 

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

As well as selling new homes, Berkeley now operates a build-to-rent (BTR) platform, with 4,000 of its builds over the next 10 years to be kept by itself and rented to tenants.

For a round-up of these latest results announced on 10 December, please click here.

ii view:

A constituent of the FTSE 100 index, Berkeley Group says it's 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. Competitors include Barratt Redrow (LSE:BTRW), Taylor Wimpey (LSE:TW.) and Persimmon (LSE:PSN).

Berkeley’s 10-year strategic plan looks to offer high levels of financial flexibility, allocating an expected £7 billion in free cashflow to 2035 between land investment, growing the BTR platform, and a minimum of £2 billion in shareholder returns. 

For investors, management’s prediction for full year 2026 and 2027 profits of around £450 million compares with £528 million in 2025. A forecast price/earnings (PE) ratio above the three- and 10-year averages may suggest the shares are not obviously cheap. Management is calling for action on previously highlighted government initiatives to help reverse the fall in London housing starts over recent years, while changes to building safety regulations may increase costs and lengthen build times. 

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On the upside, management comments flagging ‘good’ customer interest are reason for optimism. Flexibility in funding new land, the BTR platform, or shareholder returns, looks highly sensible in a challenging and potentially volatile environment. Eventual success for the government in easing planning regulations would likely be beneficial for Berkeley, while net cash held underlines a robust balance sheet. 

In all, and while near-term profits fail to inspire, an enviable track record of navigating tough market conditions and forecast dividend yield of around 3.5% will likely ensure this major housebuilder retains investor support. 

Positives: 

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

Negatives:

• Uncertain economic outlook
• Planning reforms have in the past failed

The average rating of stock market analysts:

Strong hold