Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.

Berkeley Group share price: FY update highlights cooling of performance

The Berkeley Group share price hit an all-time high in June 2018, just ahead of the firm’s full-year results, which showed record profits. Since then it has been moving lower, over concern that earnings might have reached their peak, although the wider uptrend that has been in place following the EU referendum rebound is still intact. 

Berkeley Group share price performance for the past 12 months

The pullback in the past 12 months coincides with the cooling of the London property market – where the housebuilder is very exposed. Berkeley Group's share price has been pushing higher since February 2010, and the help-to-buy scheme that was announced in 2013 helped the property market across the board.

It’s clear the stock was rallying in advance of the numbers. In that announcement, the company cautioned that earnings might have reached their peak, and now looking back 12 months, that seems to be the case.

Last year’s average selling price edged up by 5.9%, but that took away from the fact the number of houses sold actually declined by 9.44%. House prices in London are overstretched and there is some evidence of asking prices coming down. Some potential buyers have been holding off such a big outlay until there is clarity with regards to Brexit. London has been a desirable location for investors, and the housebuilder cited higher stamp duty on investment properties as an issue for the firm.

Berkeley Group's Birmingham expansion

Berkeley Group have traditionally focused on London and south east England, and now the home builder is branching out into Birmingham as a way of diversifying its portfolio. The decision adds weight to the argument that the boom times are over in London for now. One of the developments in the UK’s second largest city is close to a proposed HS2 station, and that should make the properties attractive, provided the rail scheme goes ahead. Traders will be keen to find out if the company’s Birmingham venture can keep up with the healthy margins of the London market.  

Berkeley Group share price: could politics have an impact?

Politics often play a role in business, and given that the Conservative Party are in the process of finding a new leader, there might be a new Tory prime minister in the near future. Given what happened in 2017, the Tories will try and avoid a general election, but should one be declared, that would open up the prospect of a Labour government. Mr Corbyn isn’t exactly pro-business, and the overheated London property market is likely to come under pressure should a Corbyn-led government seem likely.    

Today’s numbers from Berkeley Group

Today’s results reflect the gradual cooling of the company’s performance. Full-year pre-tax profit dropped by 20% to £775.2 million – at the upper end of market expectations. Revenue edged up by 4.1%, but keep in mind that average selling price rose by 3.1%, and the number of houses sold increased by 4.5%. Higher costs have been a common complaint in the housebuilding sector. The costs of materials are rising, and there are concerns about skill shortages too. Operating expenses increased by 5.2%.

The home builder expects next year’s annual profit to fall by approximatelyone-third from the current levels, and a pullback in earnings is hardly a surprise given the recent stellar run. The firm is predicting that next year’s pre-tax earnings will fall back to approximately £511 million, which would still be comfortably above the levels achieved in 2014, so in the grand scheme of things the group should remain in good shape.


Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.