ii view: sales boom at Barratt Developments

Covid has struck down the dividend, but demand for new housing remains firm. 

Full-year results to 30 June

• Revenue down 28% to £3.4 billion 
• Pre-tax profit down 46% to £492 million
• No dividend payment
• Cancelling the full-year 2021 special dividend previously announced
• Net cash held down 60% to £308 million
• Forward sales up 22% to £3.7 billion (as of 23 August)

Chief executive David Thomas said:

“We have delivered a resilient operational and financial performance this year against the unprecedented impact of the Covid-19 pandemic, and the resulting lockdown on our operations. Prior to the pandemic we were delivering strong progress against our medium-term targets. 

“However, the lockdown period had a significant impact on our financial performance this year. Our business model is resilient, with both operational and financial strength, and we remain dedicated to the delivery of the high quality homes the country needs.”

ii round-up:

Housebuilder Barratt Developments (LSE:BDEV) builds nationally, employing over 6,000 people across six regions and 27 operating divisions. 

Approximately two-thirds of its builds are three or four bed houses. Its brands are Barratts, David Wilson and Wilson Bowden.

For a round-up of these latest full-year results, please click here.

ii view:

Ultra-low interest rates and the government’s help-to-buy-scheme introduced in the aftermath of the 2008 financial crash have proved a boom for housebuilders. Add in the red tape of council planning and a shortage of housing and the result has been rising house and land prices. Both of which have helped housebuilders to make significant shareholder returns in recent years. 

At the turn of the year, housebuilder dividend yields at or close to double digits were not uncommon. This came on top of triple-digit share price gains over the last 10 years. Barratt, Persimmon (LSE:PSN) and Berkeley Group (LSE:BKG) shares are up over 400% since 2010. 

But while Brexit and Bank of England predictions for potential house price falls of up to 30% have not materialised, build site closures under the Covid-19 pandemic have hit investor returns. Along with the already announced non-payment of normal dividends to conserve cash in uncertain times, Barratt has today cancelled a previously scheduled 2021 special dividend totalling £175 million. 

For investors, the scrapping of both ordinary and special dividends removes what was a core attraction. A decline in the share price of around 30% year-to-date adds further to shareholder misery. But all operational sites are now back open, with management fully aware of the importance of dividends to shareholders, and interest rates are even lower post the pandemic. Forward sales are up by 22% year-over-year. In all, while the potential for a second virus spike needs to be remembered, evidence of demand for new houses appears to remain firm. 

Positives: 

• Offers regional UK geographical diversity
• Forward order book up 22% to £3.7 billion

Negatives:

• A second virus spike could again close build sites
• Dividend payments suspended

The average rating of stock market analysts:

Strong buy