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Berkeley reveal solid FY figures, but outlook is cautious

Berkeley Group announced a solid set of full-year figures. 

Revenue dipped by 0.7% to £2.703 billion and the consensus estimate was £2.729 billion. Pre-tax profits jumped by 15.1% to £934.9 million, while equity analysts were expecting £905.08 million. The company has comfortable net cash position which has increased by 140% to £687.3 million. Berkeley’s capital return programme is going well as £9.34 per share has already been returned, and a further £1 per share will be returned by September.

The firm is cautiously optimistic as political and economic uncertainty is hanging over the sector, but Berkeley Group believes there are ‘opportunities for customers who can look beyond the short-term volatility’. The construction company confirmed it is at peak profitability, and it is likely we could see profit drift lower by as much as 30%. 

The home builder slightly lifted its profit target, and it now plans to make at least £3.375 billion in pre-tax profits between May 2016 and May 2021. Before today, the recent guidance was £3.3 billion, and the original target was £3 billion. It was very ambitious of the company to set out high targets in an era of political uncertainty. UK house prices on the whole have continued to rise since the EU referendum, but recently London prices have fallen. However, given the surge in house prices in the capital it’s hardly a surprise we have seen a small pullback. The company is one of the more London-focused house builders. Average selling price for Berkeley Group in the first half rose by 9.7%.

The help-to-buy government scheme has helped drive up property prices, and the initiative will remain in place until 2020. It is likely that Berkeley has benefitted from this, but not as much as other house builders because there is a price cap of £600,000 for homes in England, and since Berkeley Group properties are at the higher end of the scale, some of the houses wouldn’t qualify for the scheme. When the programme ends in two years, Berkeley Group might be less affected than some of its competitors.

Last year the Chancellor, Philip Hammond, scrapped stamp duty for first-time buyers on purchases worth up to £500,000. No duty is on the first £300,000 of the acquisition. It was reported in April that nearly 70,000 people have been helped by this initiative. Given Berkeley’s pricing structure, they may not have benefitted from it as much other house builders.

Given the high-end developments that Berkeley builds, and their London and south east focus, their properties are popular with overseas investors. The relative weakness in the pound versus the US dollar and the Chinese renminbi has helped too.     

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