In a brief AGM update Barratt has confirmed Q1 2019 has started well.
Net private reservations per outlet per week remained broadly flat at 0.72 (2018: 0.74). While only 53 new developments were launched -below the 62 for the same period last year, total forward sales to October stand at 12,903 units, worth £3.1bn (Oct 2017: £2.8bn).
The shares were broadly unmoved on the news.
Political and economic uncertainty is a worry for the sector, but Barratt's plans to extend its capital returns plan into 2019 and a surge in land purchases suggests it thinks the current housing boom has further to run.
The sector has plenty of tailwinds. Interest rates look set to stay low by historical standards, supporting mortgage affordability. Meanwhile the UK's ongoing housing shortage continues to stoke the fires of demand for new builds.
Supportive government schemes, such as the Lifetime ISA, Help to Buy and stamp duty tax breaks, are geared towards new builds and first time buyers, providing an added boost to the builders.
While these are all macro tailwinds, it'd be unfair to say all of Barratt's recent success has been down to being in the right place, at the right time. Operational performance has been good, and client satisfaction remains high.
However, there's no getting away from the fact wider economic conditions set the tone, and these Goldilocks conditions could change at short notice.
Barratt seems to have learnt its lessons from the financial crisis, albeit the hard way. The balance sheet is net cash before accounting for land creditors, which are falling, meaning the group is far better prepared for any downturn than it has been in the past.
Given that extra resilience, a prospective yield of 8.5% is clearly attractive. But investors should bear in mind that a large chunk of the payout is due to special dividends. No dividend is guaranteed, but specials are particularly flaky.
The shares trade on 1.1 times book value, our preferred valuation method for capital intensive industries like housebuilding. That's well above the longer-term average of more like 0.88.
Full year results (5 September 2018)
Full year results showed revenue rising 4.8% to £4.9bn, as total housing completions of 17,579 rose 1.1% on last year, the highest number of completions in a decade. The average sales price increased 5% to £288,900 - boosted by some house price inflation, but also an increase in completions in central London.
Profit before tax rose 9.2% to £835.5m, with operating margins rising 0.5 percentage points to 17.7%.
Margin improvements were driven by increased efficiency, partly thanks to the launch of more efficient housing types. Changes in mix and the development of land from the group's strategic land bank also supported margin gains.
The group has set itself new targets of a minimum 23% gross margin on land acquisitions, volume growth of 3-5% and a minimum 25% ROCE.
The group is looking to return £175m to shareholders in both November 2018 and November 2019.
From 2019, returns to shareholders won't necessarily be delivered as a special dividend payment. Depending on market conditions, Barratt might instead execute a share buyback.
The group purchased £933.9m of land in the year, equating to 20,951 plots. Barratt finished the year with net cash of £791.3m in the bank, although this doesn't include a significant amount of land owed to land creditors.
The final ordinary dividend of 17.9p per share rose 4.7% on last year, and the special dividend was unchanged at 17.3p.
Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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