Interactive Investor

ii view: Berkeley Group exudes profit confidence

Having fallen 21% during 2022, shares for this brownfield-focused housebuilder are up 27% during 2023. We assess prospects.

19th December 2023 16:18

by Keith Bowman from interactive investor

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residential building flats home berkeley 600

First-half results to 31 October

  • Pre-tax profit up 4.6% to £298 million
  • Net cash up 3% from late April to £422 million
  • Total shareholder returns (dividend + share buybacks) of £127.6 million, down from £133.8 million in H1 last year

Guidance:

  • Now expects pre-tax profit of at least £1.5 billion over this current full year and next two years ahead

Chief executive Rob Perrins said: “Berkeley has demonstrated the resilience of its uniquely long-term business model with today's strong results and is extending its guidance a further year to cover the period to 30 April 2026.

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 and the South East of England, with its land holdings comprising 56,107 plots across 71 developments. 

For a round-up of these latest results announced on 8 December, please click here.

ii view:

Berkeley Group highlights itself as the only large UK homebuilder focused on the regeneration of large, complex brownfield projects at scale, transforming disused land into mixed-use neighbourhoods in 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)

For investors, the difficult economic backdrop, including still heightened borrowing costs, continues to overshadow the picture. Increased regulatory factors such as fire safety and second staircases are adding to costs. Stretched UK government finances arguably makes its position in potentially again offering industry assistance more controversial, while costs generally for businesses remain elevated. 

More favourably, Berkeley has an enviable track record of navigating difficult market conditions. Its concentration on London regularly sees investors from overseas buying its properties to rent out. Build-cost inflation has eased with selling prices staying firm, while a strong existing land bank may also enable it to better direct cash back to shareholders as it awaits a broader industry recovery rather buying new land.

On balance, and while a price to net asset value above that of rivals may suggest better value elsewhere, both a confident profit outlook and a focus on shareholder returns are likely to keep existing longer-term fans loyal. 

Positives: 

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

Negatives:

  • Uncertain economic outlook
  • Challenging planning environment

The average rating of stock market analysts:

Strong hold

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