James Gard: It’s another stock of the week debut, this time for housebuilder Berkeley Group, which has just released full year results. With mortgage rates soaring and interest rates still rising, this is a crunch point for the UK housing market. Homeowners are being squeezed and house prices are falling according to some measures. But the huge period of anxiety and market stress isn’t really reflected in Berkeley’s results, which are for the year to the end of April. Pre-tax profits were up nearly 10%, revenue was up nearly 9% and home sales were 7.5% higher. Its net cash position also improved by £141 million to £410 million. The company also maintained its profit guidance for the coming financial years to just above £1 billion pounds. So far, so good. But market sentiment is a different thing altogether. The company’s chief executive said that potential buyers are waiting until interest rates peak, or at least stabilise, before taking the plunge.
He described the current malaise as a horrible transition period that people are anxious to get through. To that end, Berkeley said that sales could fall up to 20% in this financial year, a number that rattled investors. Still, shares are roughly flat in the year to date after a turbulent 2022. Morningstar analysts think the shares remain undervalued, but they’re not as cheap as, say Persimmon, which focuses on the lower end of the market. Grant Slade argues that housebuilder shares are very much still pricing in the worst-case scenario – he argues that the market is at a cyclical low after a long period of rising prices and demand. Demographic changes and planning restrictions will underpin the market in the coming decades, he says.
In terms of dividends Berkely isn’t a big yielder but it has also embarked on shareholder return program that will be worth nearly £300 million pounds until 2025, with a mixture of dividends and buybacks. Are Berkeley’s results the last hurrah before the market slumps – or will the company manage to weather the storm? We’ll probably find out in the coming months. Until then, I’ve been James Gard for Morningstar.
