7th Sep 2022 10:14
(Alliance News) - Barratt Developments reported a record annual adjusted pretax profit figure on Wednesday, but analysts warned that "the big bad wolf of recession" could blow away expectations of solid growth ahead.
In the financial year that ended June 30, the housebuilder said pretax profit slumped 21% to GBP642.3 million from GBP812.2 million a year before. This was largely due to a GBP408.2 million cost booked relating to legacy property costs and an industry pledge on building safety.
Stripping this cost out, adjusted pretax profit rose 15% to GBP1.05 billion - a record figure that matched consensus forecasts.
"The company has been making hay while the sun shines on the housing market, amid a continued race for space. But there are concerns the big bad wolf of recession could blow away expectations of solid growth ahead," warned Susannah Streeter, senior analyst at Hargreaves Lansdown.
Richard Hunter, head of markets at interactive investor, agreed, suggesting that though Barratt's financial foundations may be strong currently, the housebuilder is not without headwinds as the sector faces "subsidence on a multitude of concerns".
"Building material supplies are seeing something of a bottleneck and the historic cost of remediation on older buildings – Barratts has made an additional provision for such works of GBP396 million this year, which has dragged on profit – is an ongoing theme," he explained.
Rising interest rates, the withdrawal of the UK government's Help to Buy scheme in its current form, and higher household energy costs are also contributing to the sector's issues.
These concerns were heightened by the latest UK house price data from Halifax on Wednesday, which showed prices creeping higher month-on-month.
The Halifax house price index saw house prices rise 11.5% in August from a year before, but this was behind the 11.8% annual rise in July. It also was significantly behind market consensus, according to FXStreet, which had forecast a 12.5% rise.
Versus the previous month, house prices increased by 0.4% in August, picking up after July's 0.1% slip.
The typical house price reached another record high in August, hitting GBP294,620.
Halifax Mortgage Director Kim Kinnaird commented: "While house prices have so far proved to be resilient in the face of growing economic uncertainty, industry surveys point towards cooling expectations across the majority of UK regions, as buyer demand eases, and other forward-looking indicators also imply a likely slowdown in market activity."
The slowdown, she explained, will come from the "considerable" hit to income expected from the cost-of-living squeeze.
Victoria Scholar, head of investment at interactive investor, said the data gave signs that the "boom" in housing could be starting to ease off.
Hargreaves's Streeter concurred: "Demand is getting shakier, and the first-time buyers who have been propping the market up are feeling the strain because of hikes in interest rates which are pricing some out of the market."
"Those on the first rung of the property ladder are the engines of the housing market, particularly at the moment when they make up just over a third of all sales. There is a risk that if they stop moving, it could seize up the rest of the market, while others further up the ladder may baulk at the size of repayments if interest rates continue, as expected, to climb upwards," she explained.
With this raft of challenges, Streeter suggested that Barratt may see further growth stifled.
Nonetheless, ii's Hunter said market consensus for Barratt remains at a "strong buy", with the company "the preferred play in the sector", despite current headwinds.
Shares in Barratt were down 1.1% at 417.70 pence on Wednesday morning in London. Over the past 12-months, the stock is down 41%.
By Heather Rydings; [email protected]
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