11th Jan 2023 17:50
(Alliance News) - For AJ Bell's Russ Mould, Barratt Developments' second cautious trading update provides "clear proof" that times are getting tougher for house-builders after a "near-ten-year boom".
On Wednesday, the Leicestershire-based housebuilder said it performed strongly in the first half of its financial year, but warned that the UK housing market has suffered a slowdown.
In the six months to December 31, Barratt's total home completions, including joint ventures, rose annually to 8,626 from 8,067. Barratt's sales rate, however, weakened to 0.44 net private reservations per active outlet per week from 0.79 a year earlier.
The total forward order book is worth GBP2.54 billion, down from GBP3.79 billion a year prior.
Victoria Scholar at interactive investor pointed to rising mortgage rates, a slowing housing market, build cost inflation and the fallout from the disastrous mini-budget as key headwinds for the firm in recent months.
"Cost-of-living pressures are prompting many potential homeowners to hold off from buying a property as they wait hopefully for mortgage rates and house prices to cool later this year. Although forecasts are for the housing market to soften, a chronic shortage of supply of UK housing is stemming a more aggressive slump," Scholar explained.
Barratt said that it has taken a "number of actions" to respond to current market conditions, including significantly reducing land approvals, pausing recruitment of new employees and introducing further controls for new site openings.
The company also warned that home completions will be below consensus and in the range of 16,000 to 16,500 should there not be a spring housing market recovery.
Shares in Barratt finished 0.2% lower to 442.90 pence each on Wednesday in London. In the year-to-date, the stock was up by 2.1%.
With management now starting to "hedge its bets", it was surprising to AJ Bell's Mould that Barratt's shares did not fall "as much as perhaps you might expect" given the "lack of visibility" and after last year's "crunching declines" and analysts' "swingeing cuts" to profit forecasts.
"It may be that a lot of bad news is already factored into the housebuilders' stock," Mould concluded.
Looking ahead, Barratt warned the uncertainty of outlook for the second half of financial 2023 with homebuyer confidence and the availability and competitive pricing of mortgages critical to the health of the UK housing market in the coming months.
Mould said that the firm "just needs to wait and see how bad things get."
"The company at least has a strong balance sheet to provide a buffer against weak trading and reward investors for their patience with dividends," he explained.
Aarin Chiekrie at Hargreaves Lansdown said he was "cautiously optimistic" for the firm's prospects in the long run.
"Recession fears have put housebuilders in a tricky spot, but Barratt's significant net cash position of GBP965m gives it plenty of wiggle room compared to peers, even if the housing market deteriorates further," he said.
By Heather Rydings, Alliance News senior economics reporter
Comments and questions to [email protected]
Copyright 2023 Alliance News Ltd. All Rights Reserved.
Related Shares:
Barratt Developments