6th Sep 2023 11:20
(Alliance News) - Barratt Developments PLC on Wednesday reported lower adjusted profit in its recently concluded financial year, amid fewer house completions, and said there would be no further share buybacks at this stage.
The FTSE 100 stock lost 1.9% to 434.90 pence on Wednesday morning in London in the wake of the gloomy results, but Richard Hunter, head of markets at interactive investor, said Barratt had played a "decent hand" with the "woeful cards being dealt to them in the current environment".
In the financial year that ended June 30, Barratt reported pretax profit rose 9.8% to GBP705.1 million from GBP642.3 million a year before, even as revenue edged up just 1.0% to GBP5.32 billion from GBP5.27 billion.
However, on an adjusted basis, pretax profit fell 16% to GBP884.3 million from GBP1.05 billion, as adjusted operating margin deteriorated to 16.2% from 20.0%.
Barratt explained that reduced profitability reflects a "fall in customer demand, overall house price inflation running below build-cost inflation and the operational gearing impact as the market has slowed down."
Statutory pretax profit improved despite adjusted profit deteriorating because costs associated with legacy properties fell to GBP181.9 million in the recent year from GBP437.5 million a year before.
Completions declined by 3.9% to 17,206 from 17,908, which Barratt said reflected the UK housing market slowdown experienced since September last year.
"Rate rises throughout the year have pushed up borrowing costs for buyers, making mortgage affordability much more difficult. Add to the mix the closure of the Help to Buy scheme and the fallout from the fiscal event back in September 2022 and you've got a potent cocktail," explained Aarin Chiekrie, an equity analyst at Hargreaves Lansdown.
"With interest rates set to remain higher for longer, consumer confidence and spending will continue to come under pressure this year, and it could be a while before momentum really picks back up again," he added.
Despite this, Chiekrie said it wasn't all "doom and gloom" for Barratt: "Build cost inflation looks set to ease to mid single-digits this year. And a sharp reduction in land spend last year more than offset the share buyback programme, helping to keep Barratt's net cash position broadly flat at a mighty GBP1.1 billion. That provides plenty of flexibility to smooth out any future bumps in the road."
Barratt on Wednesday proposed a final dividend of 23.5 pence per share, bringing the annual total to 33.7p, 8.7% behind the previous year's payout of 36.9p. Further, the company said there would be "no further share buybacks at this stage".
"Given current market uncertainty, the board has decided to retain surplus capital to maintain the resilience of the group's balance sheet," Barratt explained.
ii's Richard Hunter said the cut to the dividend was "inevitably disappointing" but a "prudent move" given the tightening environment as it allows the company to retain its cash to buffer against any upcoming challenges.
Hunter added that while there has been "havoc" in the UK housebuilding sector in recent months, Barratt has managed to "hold up well in relative terms."
"The housebuilding sector is currently one which requires a longer-term view, especially in light of a prevailing housing demand and supply imbalance. The market consensus of its shares as a buy reflects confidence in Barratt's ability to emerge from the storm in relative health," he argued.
Looking ahead, Barratt on Wednesday reiterated guidance for total home completions between 13,250 and 14,250 in financial 2024. It also said that it expects the difficult backdrop to continue over the coming months.
By Heather Rydings, Alliance News senior economics reporter
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