Barratt - the housebuilding sector is still booming
Barratt Developments this morning released a pretty healthy trading statement for the year to 30th June 2017, shrugging off concerns that Brexit would dent performance.
The company sealed the highest number of house completions for nine years, rising from 17,319 in 2016 to 17,395 in 2017.
Barratt is also selling these houses for more - the average selling price rose by 5.9% to £275,000.
As a result, profits for the year are expected to rise by 12% to £765 million, ahead of market expectations of £699 to £740 million.
This should mean a nice rise in the dividend come September, which is based on a dividend cover ratio of 2.5 times, or in other words the dividend equates to 40% of
There is one cautionary sign however- Barratt scaled back the land it acquired in the immediate aftermath of the EU referendum, and consequently over the year purchased 18,497 plots, down from 24,387 in the previous year.
Laith Khalaf Senior Analyst, Hargreaves Lansdown:
"Reports of the demise of the housebuilding sector in the wake of Brexit were greatly exaggerated. Put simply, Barratt Developments is selling more houses at higher prices, and that’s good for profits and shareholders.
Interest rates are still low, the Help to Buy scheme is still in force, and the typical Briton is as keen as ever to own their own home, in a country where households are forming quicker than properties are being built. All of that adds up to a heady mix for the housebuilding sector, which is reaping the rewards of a buoyant property market.
Of course, there are still potential banana skins. Brexit is a multi-year process and the housing market may not yet have witnessed the full impact of the decision to leave the EU. Indeed house price growth is slowing, which may be a sign of things to come. Meanwhile land price inflation looks to be picking up, with Barratt paying £51,750 per plot of land this year compared to £44,925 last year.
There are also rumblings of an interest rate rise with a split in the central bank’s Monetary Policy Committee. However this wouldn’t exactly be the first rate rise that was predicted but didn’t materialise, and if the central bank does finally decide to hike rates, it will only be back up to level we stood at last summer.
Barratt did show some caution in the wake of the EU referendum, and over the course of the year acquired 25% fewer plots of land, which might not be so good for the UK’s chronic housing shortage, but does suggest management is willing to exercise prudence.
Barratt's share price has risen by 80% since this time last year, an indication of just how deep Brexit fears ran, and how far they have receded since."