Berkeley's full-year revenue rose 8.6% to nearly £2.6bn as the group sold 7.5% more homes than in the prior year. Inflated costs and broadly flat average selling prices, reflecting the mix of properties sold, meant that the operating margin declined 1.3 percentage points to 20.3%.
Pre-tax profit rose 9.5% to £604.0m, in line with guidance issued at the start of the financial year.
Net cash increased from £268.9m to £410.4m as the group reigned in its land spending.
Berkeley reiterated its guidance for £1.05bn of pre-tax profits across the coming two financial years, weighted slightly towards the current year. The Group tells us that build cost inflation has peaked and is beginning to moderate.
Through a combination of share buybacks and dividends, the group plans to return £141.4m to shareholders in the six months to the end of September, with £35.2m of this so far completed.
The shares fell 2.2% following the announcement.
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Our view
Berkeley delivered a solid set of results despite the housing market sitting on shaky ground. The group sold more houses in the period and pricing remained resilient across the group's London-focused operations, helping pre-tax profits to rise higher.
However, recent data from Halifax has shown the first annual decline in average UK house prices since 2012, which could put pressure on Berkeley's top line going forward.
On top of that, high interest rates are causing a relative lack of urgency among buyers. Until there's more certainty about the direction of travel, potential buyers might be hesitant to sign the dotted line. That's underpinning the expectation for sales to be 20% lower this year, meaning that controlling costs and maintaining margins will be a key priority from here.
The regulatory environment has been called out for creating uncertainty and delays in the housebuilding process too. The resulting planning issues still need to be solved as they're currently creating bottlenecks in Berkeley's development pipeline.
But ultimately, Berkeley's putting in a relatively resilient showing.
The group's London focus, and higher-end product with an average sale price of £608,000, 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. That's helped to keep sales prices above the group's business plan level. Cancellation rates have normalised and build cost inflation looks to have peaked too, which will provide a welcome relief to margins.
Because of the uncertainty in the current market, Berkeley's reigned in its land spending. And careful matching of supply with demand has resulted in net cash coming in at £410.4m - roughly a 50% jump on the £269m seen in the prior year. That should help to cushion the potential impact of lower sales in the near term. It also adds weight to one of Berkeley's key attractions, its 5.8% prospective yield. Please remember no dividend is ever guaranteed.
With its higher-end focus, Berkeley offers something different to the broader sector. That's resulted in a premium price-to-book valuation compared to peers, which is justified in our eyes. But keep in mind that near-term challenges remain and this is reflected in Berkeley continuing to trade below its long-term average.
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.
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