Berkeley Group's said recent trading had been resilient, and reiterated its guidance for £500m in pre-tax profit for the full year.
Production has been better than initially anticipated since lockdowns eased. The group's now running at about 90% of normal efficiency levels, so profit is expected to be split more evenly between the two halves of the year. Pricing has been "robust", although the value of underlying reservations is around 20% lower than last year. The group expects this to support its year end forward sales position of over £1.8bn.
Berkeley currently has more than £1bn in net cash (cash and cash equivalents minus debts), and will return £134.3m of this to shareholders as a dividend of 107p per share on 11 September. A further £140.1m will be returned to shareholders by the end of March 2021 through dividends and share buybacks.
The shares fell 1% following the announcement.
Berkeley is back up and building after temporarily halting during the lockdowns. Strong pricing and efficient building have given management the confidence to give full year profit guidance.
In the long run, we think the UK housing market is reasonably attractive. Brits still love to own their own homes, all political parties see the need for more housebuilding and mortgages are relatively affordable. However, the sector is cyclical and highly exposed to economic shocks, and a sustained recession or second wave of coronavirus infections may still hit house prices.
Berkeley does offer something different to the other large builders because it operates at the pricier end of the market and has a large exposure to London. Many of its sites are technically challenging, and that's afforded it enviable margins in the past. Whether or not this exposure to more exclusive property proves to be an advantage depends on the nature of our economic recovery.
Berkeley has also tended to run a tight ship through the economic cycle - it's enjoying high margins now partly because of its deft management of the financial crisis. The balance sheet is currently packed with over £1bn of net cash, and the group had a further £250m in available credit at year end.
Unlike some of its peers, Berkeley is going forward with its original dividend and share buyback plans. This demonstrates management's confidence in the future, but we're mindful that until there's a clearer picture of what the medium-term is going to look like, this could prove to be over-confidence. Remember dividends are never guaranteed, and that's especially true in difficult times like these.
Overall, Berkeley offers a differentiated business model, and performance to date has been robust. If we can avoid further disruption, we think it's well positioned to bounce back. But "if" is doing a lot of work here - a prolonged shutdown or slow economic recovery will eventually whittle away Berkeley's capital.
Berkeley key facts
- Forward P/E ratio: 15.0
- 10 year average forward P/E ratio: 10.2
- Prospective yield: 4.4%
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Full year results (17/06/20)
Berkeley's revenues fell 35.1% to £1.9bn in the year ended 30 April 2020 as a number of Central London developments completed. Full year profit before tax of £503.7m was down 35% for the same reason.
Sales in April and May were down around 50%, although pricing was ahead of expectations. The group says it's too early to say where demand will settle in the coming year.
The group remains committed to returning £280m to shareholders each year until 2025, and will determine how much of this is paid as a dividend in August. Berkeley is also deferring a £455m capital return for up to two years in the light of COVID-19 related disruption.
Berkeley sold 2,723 homes during the year for an average price of £677,000, down from 3,698 homes at £748,000 last year. The fall in average selling price reflects the differing mix of properties.
The group's gross margin has risen from 31.3% to 33.2%, again reflecting the mix of properties. Together with higher staff costs that mean Berkeley's operating margin fell from 26.0% to 24.5%.
The group ended the year with £1.1bn in net cash, up 16.8% year-on-year, and the group has £250m left to draw upon in its revolving credit facility. The group's forward sales position is £1.9bn, compared with £1.8bn last year.
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