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Barratt Developments - strong first half performance

Charles Huggins | 13 January 2016 | A A A
Barratt Developments - strong first half performance

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No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Barratt Developments plc Ordinary 10p

Sell: 483.70 | Buy: 484.10 | Change -3.10 (-0.64%)
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Barratt Developments has delivered a strong first half performance. Total completions were up by 9.4% in the period and total average selling prices increased by 10.8% to c. £254k. Average net private reservations per active site per week increased to 0.66 (2014: 0.58).

The land market remains attractive and the group continues to secure "excellent" reinvestment opportunities, with £558.7m of land approved for purchase in the period.

Barratt has confidence in the full year outlook, with total forward sales up 20.0% on the prior year and market conditions remaining favourable. The group continues to target a minimum gross margin of 20% and minimum return on capital employed of 25% by FY17, along with on-going cash returns to shareholders over the next two years.

The shares rose by 1% in early morning trading.

Our view:

Barratt Developments is enjoying strong volumes and rising selling prices, whilst the forward order book provides good visibility. The group is in excellent shape and is throwing of cash, with plans to return in the order of £667m in ordinary and special dividends by November 2017.

The housing market is currently being supported by rising disposable incomes, low mortgage rates and government schemes such as Help-to-Buy, which are encouraging more people onto the housing ladder. Changes announced in the Autumn Statement (alluded to by Barratt Developments in its half year trading update) should provide further support. George Osborne plans to invest almost £7 billion on measures to help people, especially first-time-buyers, purchase their own home; including an extension of the Help to Buy programme through to 2021.

Land price inflation is running at modest levels, with the government keen to open up further land for development, in recognition of the UK's chronic housing shortage. This is supporting margins, cash flows and returns of capital to shareholders.

With the house building sector trading at significant premium to book value, share prices are likely to be vulnerable if the housing market were to hit a rough patch. For now, market conditions look set to remain favourable, especially whilst the Bank of England is at such pains to stress that interest rates will only rise gently over the next few years.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.

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