Interactive Investor

ii view: unwavering confidence at housebuilder Berkeley Group

Focused on the undersupplied London housing market and offering a forecast dividend yield of around 4%. Buy, sell, or hold?

5th April 2024 15:46

by Keith Bowman from interactive investor

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Third-quarter trading update to 29 February

  • Expects current full-year pre-tax profit of £550 million
  • Group net cash at the financial year end is forecast to be above the half year position of £422 million

Guidance:

  • Continues to expects pre-tax profit over three years to 30 April 2026 including this year of at least £1.5 billion

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. 

It operates principally in London, the Southeast of England and Birmingham, building more than 19,600 homes over the last five years.

For a round-up of this latest trading update announced on 15 March, please click here.

ii view:

Berkeley Group highlights itself as the only large UK homebuilder focused on the regeneration and reviving of disused and underused land to build mixed-use neighbourhoods within 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 challenging economic backdrop, including high borrowing costs, continues to overshadow, with sales rates remaining down around a third compared to the previous financial year. Increased regulatory factors such as fire safety and second staircases are adding to costs, stretched UK government finances arguably leave it less able to provide industry assistance, while costs generally for businesses, such as wages, remain elevated. 

To the upside, 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.

For now, and while a price-to-net asset value above that of rivals may suggest better value elsewhere, both a focus on shareholder returns and a confident profit outlook are likely to see the many fans of this housebuilder sit tight.  

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:

Hold

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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