ii view: Berkeley Group shares near four-month high

Now the biggest UK housebuilder by stock market value. We assess prospects.

First-half results to 31 October

• Revenue down 1.6% to £1.2 billion
• Pre-tax profit down 2% to £285 million
• Net cash of £343 million, up from £269 million
• Total shareholder returns of £133 million, down from £486 million
• Full-year guidance unchanged

Chief executive Rob Perrins said:

“These outcomes have been achieved against an increasingly challenging operating and regulatory environment, which has been brought into even sharper focus by the deteriorating economic outlook as the world comes to terms with the cost of the pandemic, the war in Ukraine and other global events.

“While Berkeley is ready and able to invest in new opportunities to increase delivery, we are positioning the business to reflect today's environment until the conditions for growth are present to support responsible, sustainable investment. We are experienced at operating in times like these and will focus on generating value from our existing assets with limited new investment, matching supply to demand and cash generation.”

ii round-up:

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

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

It operates principally in London and the Southeast of England.

For a round-up of these latest results announced on 9 December, please click here.

ii view:

Berkeley highlights itself to be the only large UK homebuilder focused on the regeneration of large, complex brownfield projects at scale, transforming disused land into mixed-use neighbourhoods within the UK's most undersupplied markets. It is the largest contributor to new homes in London. 

For investors, a cocktail of challenges was recently added to by the Truss government’s failed mini-budget and rising mortgage rates. Industry headwinds now include rising interest rates, a cost-of-living crisis for consumers and ongoing supply chain challenges. Costs for the building industry broadly have been rising, while stretched UK government finances leave its position in potentially offering sector assistance more questionable.  

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More favourably, Berkeley has a strong record of navigating tough conditions. Management caution regarding investments has been raised, group net cash has risen and prices for its properties have remained firm. A strong existing land bank may also enable it to better direct cash back to shareholders rather than towards buying new land.

On balance, and given its solid historic record and analyst estimates for future shareholder returns of over 5%, investors are likely to remain patient.   

Positives: 

• An industry revered track record
• Sizeable landbank

Negatives:

• Uncertain economic outlook
• Rising build costs

The average rating of stock market analysts:

Buy