6th Sep 2022 12:31
(Alliance News) - Berkeley Group Holdings PLC on Tuesday said sales in the first four months of its new financial year were ahead of those achieved a year before, despite rising costs within the UK housebuilding sector and an increasingly uncertain market.
Analysts questioned the sustainability of the strong trading, however, suggesting that Berkeley may soon feel the bite of inflation and declining consumer confidence.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said: "The reason profits have been left without too much bruising is because sale prices are high enough to offset the housebuilder's fatter bills. This is a dynamic being seen almost across the board, but the longevity of the pattern is a question mark for Berkeley."
Berkeley said it was on track to deliver pretax profit of GBP600 in the year ending April 30, 2023, and GBP625 million in financial 2024.
In financial 2022, the company reported pretax profit of GBP551.5 million. This would mean year-on-year growth of 8.8% for financial 2023, if achieved.
Berkeley cited good levels of demand and the ongoing resilience of its sales market for the positive expectations.
Russ Mould, AJ Bell investment director explained that the company also benefited from operating at the "premium end of the market", though he warned this may be a "double-edged sword".
The quality of Berkeley's housing stock - which is focused on the south-east of England - could provide it with pricing power in an uncertain market. Alternatively, Berkeley's target market may simply not yet be feeling the full force of rising mortgage costs and cost-of-living pressures on demand.
"Its target market may be more insulated from the worst of the current pressures, but at the same time even higher earners may balk at committing to the purchase of a GBP700,000 house," Mould said.
Richard Hunter, head of markets at interactive investor agreed, suggesting that any decline in average selling prices would "remove a plank" which has enabled Berkeley to mitigate most of the inflationary impact so far.
"Supply chain constraints and a generally dour outlook on UK economic prospects complete the mix [of "an increasingly toxic combination" for the housebuilding sector]," Hunter added.
Shares in Berkeley were up 4.5% at 3,602.00 pence on Tuesday at midday in London. However, over the past year, the share price has dropped 25%.
Hunter argued that the "acid test" for Berkeley against this volatile backdrop was its share performance. He argued that Berkeley was no exception to "currently failing" housebuilders.
"The market consensus of the shares as a buy most likely reflects an increasingly undemanding valuation and perhaps equally importantly, the longer term view given the group's access to a rarefied market in London and the South East," Hunter said.
By Heather Rydings; [email protected]
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