ii view: Trading remains robust at Berkeley Group

Housebuilder Berkeley has flagged robust trading, but it's still busy making Brexit preparations.

Trading update for the period 1st May to 31 August 2019

• Pricing has remained stable
• Forward sales position remains above £1.8 billion
• Anticipates half-year net cash to be at a similar level to the full-year level of £975 million

ii round-up:

Housebuilder Berkeley Group Holdings (The) (LSE:BKG) was established in 1976. Today, its brands include Berkeley Homes, St Edward, St George, St James, St Joseph and St William, operating principally in London, Birmingham and the South of England.

The housebuilder and FTSE 100 constituent's latest investor update saw it pointing to broadly robust trading conditions, despite the backdrop of Brexit uncertainty. 

Pricing had remained stable with the value of forward sales above the £1.8 billion level reported back at its June full year results announcement. 

Preparations regarding Brexit and arrangements with its suppliers have been taking place, including accelerating the delivery of certain materials and components.

Given the long-term nature of the housebuilding business, management also reiterated its target to achieve £3.3 billion of pre-tax profit over the six years to 30 April 2025, with profit in any one year expected to range between £500 million and £700 million. This would be down from the £775 million made over the last full financial year. 

The share price rose by just over 1.5% in early UK stock market trading.

ii view:

Berkeley's track record and prudent business model have helped give it something of a revered reputation among investors within the housebuilding sector. A strong presence in London has also left its arguably more subject to international buyer and investor considerations.

For investors now, a single-digit historical price/earnings (PE) ratio doesn't appear overly demanding while the sector's current focus on shareholder returns and Berkeley's specific prospective dividend yield of over 5% provide attractions. However, given the backdrop of Brexit uncertainty and its particular international customer interest, investors might prefer a wait and see approach here. 

Positives: 

• An industry revered track record
• Trading has remained robust
• A focus on shareholder returns - 2018 shareholder returns totalled £251.9 million

Negatives:

• 2018/2019 pre-tax profit fell 20.7% to £775.2 million
• Berkeley does not have the national footprint which some of its rivals do
• Industry build costs have been rising

The average rating of stock market analysts:

Hold