Berkeley Group sets 10-year strategy; heralds housebuilding "new era"

(Alliance News) - Berkeley Group Holdings PLC on Friday set out a new ten-year capital allocation ...

Alliance News 6 December, 2024 | 9:51AM
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(Alliance News) - Berkeley Group Holdings PLC on Friday set out a new ten-year capital allocation strategy as it reported it is on track to meet profit guidance and said there was a substantial opportunity for a new era of housebuilding.

The Surrey, England-based property developer and housebuilder said there was good underlying demand for homes, as it reported revenue increased 7.2% in the six months to the end of October to GBP1.28 billion from GBP1.19 billion a year before.

However, Berkeley said transaction volumes remain a third lower than in 2023, although there had been a "slight uptick" in recent weeks. The company noted that an improvement in consumer confidence and macroeconomic stability could lead to a more meaningful recovery.

Pretax profit was down 7.7% in the half year to GBP275.1 million from GBP298.0 million in the first half of financial 2024.

Berkeley said it is on track to achieve pretax profit guidance of GBP525.0 million for the full year, and at least GBP450 million for the following year. These results will be down from GBP557.3 million in financial 2024.

Berkeley Chief Executive Rob Perrins said: "As previously announced, pretax return on equity will dip below Berkeley's long-term target of 15% at the above levels of profitability, due to the impact of the operating environment and market conditions of recent years on our industry and the wider economy. We therefore welcome government's mission for growth and its brownfield-led housing agenda to resolve the issues in the planning system and deliver 1.5 million new homes over the next five years."

Berkeley also said it was on target to complete the final annual GBP283.2 million payment under the current shareholder returns programme by the end of September next year. This includes a 33.00 pence per share dividend which will be paid in March 2025. Any residual amount will be paid as a dividend in September 2025.

Alongside the results, Berkeley set out a new ten-year growth strategy to provide a new capital allocation framework.

As part of the plan, Berkeley has identified GBP7.00 billion of free cash flow to invest over the next ten years. The company said around GBP2.50 billion will be spent on land investment, GBP2.00 billion as a minimum level of shareholder returns, GBP1.20 billion on the construction of the company's buy-to-rent platform, and a remaining GBP1.30 billion as a flexible allocation.

Berkeley said GBP900.0 million of the new shareholder returns will be paid by the end of September 2030. The company said the actual level of returns after September 2025 will depend on how the free cash flow is allocated.

Berkeley also said the new UK government's brownfield-led housing agenda and commitment to deliver 1.5 million new homes over the next five years has "galvanised the planning system". It is working with all levels of government to translate this into "economically viable planning consents".

The company said the Labour government's prioritisation of brownfield development, a Berkeley speciality, means Berkeley is "ideally placed" to play a role in "a new era for homebuilding".

CEO Perrins said: "Berkeley wants to play its full part in addressing this shortfall and helping government meet its ambitions and believes that we are close to the point of inflection when both the operating environment and market conditions are supportive of investment."

Berkeley delivered 2,103 homes, plus 177 from joint ventures, in the recent half-year, up from 1,785 and 204, respectively, a year before. Of the recent total, 92% were on brownfield land.

Third Bridge analyst Yanmei Tang commented: "Berkeley is adapting to a shifting market, facing challenges like high build costs, complex planning processes, and regulatory pressures such as the UK Building Safety Act, which is expected to reduce profit margins by 1% to 2%.

"However, the company remains well-positioned, thanks to a robust land acquisition strategy that focuses on long-term regeneration projects and partnerships with landowners. Berkeley's pivot to out-of-London locations reflects its ability to anticipate market trends and secure lower-cost opportunities."

Shares in Berkeley were down 1.3% to 4,112.00 pence in London on Friday morning.

By Michael Hennessey, Alliance News reporter

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Securities Mentioned in Article

Security Name Price Change (%) Morningstar
Rating
Berkeley Group Holdings (The) PLC 3,898.00 GBX -0.51

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