Interactive Investor

Profits soar at FTSE 100 builder Barratts

2nd September 2021 09:52

Richard Hunter from interactive investor

Yield of 4% at UK housebuilder will attract the attention of income-seeking investors.

Barratts (LSE:BDEV) is making solid progress as the economic clouds begin to clear, as seen elsewhere in the sector.

The results come against strong comparatives from last year as pent-up consumer demand was beginning to filter through, let alone attempting to reach pre-pandemic levels on a number of its metrics.

Pre-tax profit has nonetheless risen by 65%, partially driven by a revenue increase of 41%, although the numbers remain shy of 2019 levels by 11% and 1% respectively. Similarly, the Return on Capital Employed metric has improved by 1.3% to 28.3%, still light of pre-pandemic levels by 1.4%.

Home completions are also moving ahead at a strong clip, 37% higher than last year and edging towards recovering to 2019 levels, with just 3.4% to go.

There are also particularly strong performances within other key metrics, such as net private reservations which have risen by 22%. Forward sales reflect a positive outlook, not only ahead by 0.5% in number and 6.3% in value against last year, but up by 20% and 30% respectively versus 2019. At the same time, the company has accelerated its land-buying programme, which had been seen as lagging some of its rivals, with the proposed spend of £877 million comparing to £368 million last year and £860 million the year previous.

The renewed flurry of activity has also generated high levels of income, with net cash standing at £1.3 billion, up by 327% on last year and 72% on 2019. The announcement of the final dividend also returns the overall yield to pre-pandemic levels, where a level of 4% will attract the attention of income-seeking investors, as well as those searching for capital growth.

Elements of caution inevitably remain, as the fallout from the withdrawal of government support schemes, spiking inflation and potentially fragile consumer sentiment could all impact the sector in general. Costs are still ongoing to repair some of the its legacy properties, although largely contained.

Overall, the general direction of travel is becoming established, and it is a positive one. The company is well managed and capitalised, with the immediate outlook promising in terms of forward sales and a forgiving environment as the government maintains its stance to encourage more home ownership.

The share price has reflected the group’s efforts, having risen by 48% over the last year as compared to a gain of 20% for the wider FTSE 100, leaving it vulnerable to some profit taking in early trade. Even so, the market consensus of the shares, which is still coming in as a strong buy, reflects that appetite for Barratts remains undiminished.

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