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Berkeley Group - revenues down, full-year guidance unchanged

Half year revenue fell from 1.6% to ?1.2bn compared to last year.

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Half year revenue fell 1.6% to £1.2bn compared to last year. This comes as pricing remained constant, but sales since the end of September were 25% lower than the levels experienced in the first 5 months of the period.

Forward sales, which reflects sales due to complete within the next three years, rose 7% to £2.3bn. Reservation rates are 2% ahead of the same period last year.

Berkeley remains on course to hit this year's pre-tax profit target of £600m. But the group has downgraded its pre-tax profit target for the following two years from £1.25bn to £1.05bn.

The group's net cash position increased from £269m to £343m.

Berkley acknowledged the deteriorating economic outlook, stating that they will limit new investment and focus on generating value from their existing assets.

The shares were unmoved following the announcement.

View the latest Berkeley share price and how to deal

Our view

Rising interest rates, and a cost-of-living crisis, have been tough opponents to wrestle with for housebuilders including Berkeley. But despite this, for the first 5 months of the period, revenues were ahead compared to last year. The group's ultimately putting in a resilient showing, with forward sales and reservation rates all moving in the right direction.

We can't knock progress but there are some things to keep in mind. The group has experienced cancellation rates creeping up from the early-teens to around 20% in the last couple of months. And while Berkeley remains confident in hitting its full-year pre-tax earnings target of £600m, it did lower its targets for the following two years. Downgrades to expectations like this suggest that Berkeley envisions tough times ahead, as high building costs and increasing corporation tax will likely create a headwind for margins.

Looking longer-term, the group's London focus, and higher-end product with an average sale price of £560,000, 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.

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 remains above the group's business plan level.

Following the purchase of National Grid's stake in St William, net cash took a hit but in the last six months it has been built back up by £74 to more than £340m. 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 5.8% prospective yield. Please remember no dividend is ever guaranteed.

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.

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: 9th December 2022