10th Mar 2023 11:24
(Alliance News) - Berkeley Group Holdings PLC's trading update on Friday provided a "reassuring hug", analysts said, but they warned that the troubled UK housing market will hurt the company's results.
"Berkeley's trading statement provides the usual reassuring hug we have come to expect, with a reiteration of its FY23 pretax profit guidance and indeed its guidance out to FY25," Jefferies analyst Glynis Johnson commented.
Berkeley said trading between November and February was in line with levels noted in December as the UK housebuilding sector recovers from its September 'mini budget' shock.
The Surrey-based housebuilder said its performance of around 25% lower sales from November 1 to February 28, when compared to May 1 to September 30, was "resilient" given the market volatility since the end of September.
Berkeley added that this reflected the underlying demand for homes in London and the South East.
Berkeley reaffirmed a target of pretax profit of GBP600 million for financial 2023 ending April 30, with at least GBP1.05 billion in aggregate to follow over the next two years. Pretax profit in financial 2022 was GBP551.5 million, up 6.4% from GBP518.1 million the year prior.
Cash due on exchanged forward sales is anticipated to be above GBP2.0 billion at year-end, down slightly from GBP2.17 billion a year before. Peel Hunt analysts Clyde Lewis and Sam Cullen said that despite forward sales being down 8%, they "remain high."
"Given this update, we do not expect to make major changes but will need to trim our net cash position" forecast for Berkeley, Lewis and Cullen said.
They added: "We like the long-term characteristics of the business but see better value in the sector elsewhere."
AJ Bell investment director Russ Mould said: "Berkeley is a high-quality operator in a sector facing a tough time and it demonstrated such credentials with a trading update which reaffirmed 2023 guidance."
Mould explained: "Because it is pitched largely at the premium end of the market in the London and South-East, its wealthier buyers may be a bit more insulated from the impact of rising mortgage costs and other inflationary pressures. This seems to be borne out by a less dramatic fall in sales rates since September's mini-Budget than that experienced by some of its peers. Though a slump of 25% is alarming enough."
Away from the company's outlook, Berkeley said it working with the UK government to be in a position to sign the fire safety remediation agreement, whose deadline is Monday.
The self-remediation contract requires developers to fix unsafe buildings from the past 30 years. The new requirement follows the Grenfell Tower fire in 2017, which was made deadly by flammable building cladding.
Jefferies' Johnson said that the date for signing for pledge is "fast approaching", and "there still appears issues to iron out". Berkeley, however, said it is "working through the associated procedural matters with government".
Johnson added: "This also may reflect, however, the range of other topics which the housebuilders are also keen to discuss (planning, current trading, building regulations etc)."
Meanwhile, Berkeley said it aims for the next GBP141.4 million shareholder return to be provided by the end of September via a combination of dividends and share buybacks.
Berkeley shares were 0.2% lower at 4,030.00 pence each on Friday morning in London. The stock is up 7.2% over the past year.
Peel Hunt rates Berkeley shares at 'add' with a price target of 3,760p. Jefferies reiterated its 'hold' recommendation, with a price target of 4,651p.
By Sophie Rose, Alliance News reporter
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