Interactive Investor

Insider: over £2.6m spent on these dividend stocks

27th June 2022 08:50

Graeme Evans from interactive investor

Fears of a house price crash are overdone, argues one City analyst, and directors at two of the housebuilding sector’s biggest names are filling their boots.

Share purchases by directors at Berkeley Group Holdings (The) (LSE:BKG) and Taylor Wimpey (LSE:TW.) have been made in a market increasingly pricing in a hard landing for the housebuilding sector.

Berkeley boss Rob Perrins led last week’s buying with an investment worth £1.8 million in the aftermath of the company’s strong annual results on Wednesday.

Purchases totalling £800,000 were also struck by three non-executive directors at prices as low as 3,617p, a level 14% weaker than the start of the month as fears intensify over the house price impact of rising interest rates and deteriorating economic outlook.

At Taylor Wimpey, the leadership team of chair Irene Dorner and chief executive Jennie Daly spent a combined £50,000 after a fall of a third for the FTSE 100-listed shares this year.

Both companies trade with chunky forward dividend yields — above 8% for Wimpey and over 6% for Berkeley — and the support of many City analysts. But investors continue to give the sector a wide berth after a valuation fall of about 40% from pre-pandemic levels.

Liberum, which has “buy” recommendations on all nine housebuilders in its coverage, believes fears of a house price crash are overdone.

The broker said last month: “We are convinced the gathering macro-economic challenges will lead only to softening of the housing market, not collapse. Our confidence is based on good affordability, significant savings and a strong labour market.”

Berkeley’s full-year results showed profits 6.4% higher at £551.5 million, with earnings per share of 418p ahead of consensus of 390p following share buybacks and capital returns totalling £515 million.

The brownfield regeneration specialist anticipates earnings of approximately £600 million for the year to April and £625 million in the following two years, after which its focus will shift to returning cash over and above the current scheduled payments.

The current commitment is to make annual shareholder returns of £282 million or 254p a share up to September 2025, including £141 million in the current half year.

Peel Hunt has a price target of 5,025p, adding: “While other housebuilders look cheaper, there remains a lot of hidden longer-term value within Berkeley.”

Positives for analysts at UBS include the fact that Berkeley is 80% forward sold for the current financial year and has reported good sales visibility into 2024.

It also notes that in London, where Berkeley generates the bulk of its earnings, there is severe undersupply with housing starts at well below the Mayor's target of 52,000 and the Government's assessed need of 94,000.

The recent £413 million buyout of National Grid's (LSE:NG.) 50% interest in the St William regeneration business secured “unrivalled” land holdings in London and the South East, giving Berkeley full control of 24 sites with the potential to deliver over 20,000 homes.

The deal took the estimated future gross margin on Berkeley’s land holdings to £8.1 billion, meeting a £7.5 billion target three years early, and meaning it will now only acquire new land “very selectively”.

UBS, which has a price target of 5,000p, said: “Berkeley has historically proven to be one of the most defensive homebuilders and we expect this cycle to be no different.”

Post-results purchases have also taken place at discoverIE Group (LSE:DSCV), where the two top directors bought shares after further pressure on the value of the industrial components firm.

Despite the FTSE 250-listed company expecting “further good progress”, the shares are 7% cheaper than the day of annual results on 14 June and 40% lower in the year to date.

The group, which designs and makes electronic components for industrial applications, reported earnings 34% higher at a bigger-than-expected £41.4 million and a dividend up 6% to 7.45p a share for payment on 2 August. The dividend has more than doubled since 2010.

Chief executive Nick Jefferies said his optimism was underpinned by a clear strategy focused on long-term, high quality, structural and sustainable growth markets. It boasts a record order book and a strong pipeline of acquisition opportunities.

His comments were backed up on Friday when it emerged his wife had made a £20,000 purchase of shares at 601p. Finance director Simon Gibbins made a similar investment, with the price at its lowest price since October 2020 and more than half September’s level.

Peel Hunt believes shares can return to 1,200p, with its updated forecasts based around shares trading on a multiple of 22 times March 2023 earnings.

The broker added: “In another period when the business has been presented with various challenges, including inflation and supply chain disruption, the model has proved nimble and effective, and deserving of a premium rating.”

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