ii view: housebuilder Berkeley Group reassures shareholders

Focused on large brownfield regeneration and offering a prospective dividend yield of around 5%. Buy, sell, or hold?

Trading Update from 1 November 2022 to 28 February 2023

ii round-up:

Housebuilder Berkeley Group Holdings (The) (LSE:BKG) today reaffirmed its expectations for current full-year profit as pricing remains firm, build cost inflation has eased, and sales already agreed continue to complete. 

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Pre-tax profit to the end of April of around £600 million is still the forecast, with current trading in line with the 25% retreat highlighted back at its December first-half results. Management’s profit expectation for the next two financial years also remains unchanged at a combined £1.05 billion.  

Shares for the FTSE 100 company were little changed in UK trading, despite a large sell-off elsewhere, having come into this latest announcement up around 7% year-to-date. That follows a one fifth fall in 2022. Rivals Barratt Developments (LSE:BDEV) and Bellway (LSE:BWY) are both up around 12% in 2023, having fallen by more than 40% last year. 

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Cash due on Berkeley's exchanged forward sales is expected to be above £2 billion as of its late April financial year-end, similar to the £2.17 billion seen a year ago. 

Group net cash come year-end is put at around £375 million, up from £269 million at year-end 2022, although subject to any new share buyback schemes. 

Berkeley’s shareholder returns programme continues to feature a commitment to return £283 million or £2.62 per share per annum to September 2025.

Broker UBS reiterated its ‘buy’ stance on the shares following the trading update. 

ii view:

Started in 1976, housebuilder Berkeley Group today 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 within the UK's most undersupplied markets. It is the largest contributor to new homes in London. Its brands include Berkeley Homes, St Edward, St George, St James, St Joseph and St William.  

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For investors, the headwind of rising global interest rates cannot be ignored. Neither can a broader cost-of-living crisis and stretched UK government finances, which arguably leaves little room to provide the sector with further assistance. Elevated build costs also continue to warrant consideration, as do concerns about the pace of UK planning persimmon and expected industry redress following the Grenfell fire.    

On the upside, Berkeley has a strong track record of navigating tough volatile market conditions. The 25% fall in recent sales compares to 40% plus falls at some rival housebuilders, group net cash is expected to rise come its pending year end, while a strong existing land bank may also enable it to better direct cash back to shareholders rather than towards buying new land.

For now, and while some caution looks sensible, a robust history of navigating turbulence and forecast dividend yield in the region of 5% will likely appease investors with a long term perspective.   

Positives: 

• An industry revered track record
• Solid landbank

Negatives:

• Uncertain economic outlook
• Elevated build costs

The average rating of stock market analysts:

Strong hold