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Berkeley Group - on track for full year

Higher sales prices are offsetting higher costs, meaning Berkeley's on track to meet its full year profit target.

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Higher sales prices are offsetting higher costs, meaning Berkeley's on track to meet its full year profit target. Pre-tax profit's expected to be £600m this year, rising to £625m in 2024.

Forward sales rates are expected to be "marginally" ahead of last year's £2.17bn, with the group seeing a "good level" of demand.

Berkeley warned the operating environment remains volatile, with cost inflation running at 5-10%. Because of this, Berkeley will be more selective in buying any new land.

Around £38m of share buybacks has been completed, as part of the new £141.1m shareholder return plan. The amount to be paid as a dividend will be announced before the end of February 2023.

The shares rose 3.5% following the announcement.

View the latest Berkeley share price and how to deal

Our view

Berkeley's putting in a very resilient showing. Rising interest rates, and a cost-of-living crisis, haven't put buyers off. Reservation rates remain ahead of pre-pandemic levels and forward sales pushed above and beyond expectations at the full year.

The group's London focus, and higher-end product with an average sale price of £603,000, means it offers something different to the other large builders. 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 going forwards depends on how the economy evolves.

The signs are positive. Domestic and international demand in the key London market remains robust and the housing supply shortage doesn't look to be going away anytime soon. The average selling price has fallen, largely due to the type of homes sold, but remain above the group's business plan level and crucially high enough to offset increased building costs.

Following the purchase of National Grid's stake in St William, net cash took a hit but still stands at almost £270m. That gives plenty of breathing room to stomach any ups and downs, but also supports growth plans. It also adds weight to one of Berkeley's key attractions, its 6.4% prospective yield. Please remember no dividend is ever guaranteed.

We were glad to see the group take quick action to boost its land assets with the St Williams purchase. Buying out a partner in a joint-venture that's already delivered 1,100 homes removes a lot of execution risk, and means earnings are should feel the benefit in the near term.

That'll likely be it now for any large scale land purchases, as the group turns focus to developing existing sites. There'll also be a shift in priority from land investment to shareholder returns once this round of spending's out the way, should there be excess capital to allow it.

Berkeley key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

Full Year Results (22 June 2022)

Berkeley posted revenue of £2.3bn, up 6.6%, as the group sold 33% more homes. Higher operating costs and a lower average selling price, due to the type of property sold, meant operating margin declined 1.2 percentage points. However, driven by higher profit from joint ventures, pre-tax profit rose 6.4% to £551.5m.

Pre-tax profit is expected to come in at £600m next year, and £625m for the two years thereafter.

Berkeley continues to target £282m in shareholder returns per year, in either dividends or buybacks. £63.7m has been returned so far this year, with more information on the dividend coming on 11 August.

The group warned on volatility in the housing market, but sees prices continuing to offset cost inflation.

Berkeley sold 3,760 new homes (2021: 2,825) at an average selling price of £603,000, 22% lower than the prior year and reflecting the type of property sold. Underlying sales reservations are 25% higher than last year, and slightly ahead of pre-pandemic levels. Forward sales, which reflects sales due to complete within the next three years, rose 27% to £2.2bn.

The landbank rose from 63,270 plots to 66,163 plots and now has an estimated future gross profit of £8.3bn, up from £6.9bn.

As at 30 April 2022, the group's inventory totals £5.1bn. That reflects an increase of £1.5bn largely driven by the acquisition of St William. Inventories include £738m of land not under development and £4.4bn of work in progress and completed homes.

The group had a free cash outflow of £130.8m, driven by the acquisition of St William. Net cash at the end f the year stood at £268.9m, down from £1.1bn. This was driven by the free cash outflow, higher investment in joint ventures and increased shareholder returns. Land creditors rose from £388m to £801m, with £81m due in the short term.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. 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.

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 disclosure for more information.

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Written by
Sophie Lund-Yates
Sophie Lund-Yates
Lead Equity Analyst

Sophie is a lead on our Equity Research team, providing research and regular articles on a selection of individual companies and wider sectors. Sophie's specialities are Retail, Fast Moving Consumer Goods (FMCG), Aerospace & Defence as well as a few of the big tech names including Facebook and Apple.

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Article history
Published: 6th September 2022